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A Brief Introduction of the Activity Based Costing Managerial Accounting

Cost accounting is an inclusive part of the management accounting. It is mainly concerned with the budgeting as well as calculating the actual costs of the operations, profitability, and various processes that the company is involved in. Cost accounting is used by the managers in order to cut down the costs and increase the profitability. Cost accounting is a part of the management accounting and does not have to adhere to any of the standards like the GAAP. It is mainly meant for the internal management to take informed decisions and not for the outsiders. There are several methods of doing cost-accounting like lean accounting, resource consumption accounting, standardized cost accounting and the activity based accounting. One of the most prominent ways of doing cost accounting, among all these, is the activity based costing managerial accounting.

Activity based costing managerial accounting is that form of accounting that identifies the activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each of them. Using the method of activity based costing managerial accounting helps the company in estimating the actual costs of the products and services for the purpose of identifying as well as eliminating those that are unprofitable and decreasing the cost of those products as well as services that are overpriced.

Some of the uses of the activity based costing managerial accounting are as follows:

  • It helps in determining the unnecessary costs
  • It aids in identifying the inefficient products as well as departments and activities
  • It allows for the calculation of the costs at the individual and the departmental level.
  • Using it, more resources can be allocated to the profitable products, activities and departments.

Although the activity based costing managerial accounting has some limitations it is still in use and is used by many organizations.