An assignment on activity based costing system demands a sound knowledge regarding the costing system which is based on the activities related to the production. The activity based costing system of any firm refers to the accounting method. This accounting methods help to get an overview of the activities that a firm performs while manufacturing the product. The chief purpose of this accounting method is to identify the relation among three basic things namely, costs, products and the activities related to production. Setting a bridge among these factors is mainly done for running a successful business.
The entire manufacturing of any product goes through several steps and activities. In most of the cases of accounting assignments these activities play an important role for following a specific costing system. Several activities performed by the firm in the manufacturing process demands different types of costs. In activity based costing system the summation of costs of all those activities is the main focus. Each and every step, starting from the manufacturing of the products to supplying those to the consumers is important in the accounting assignment.
The activity based costing system allows any firm to get a prominent and reliable idea regarding the cost of the product. This accurate idea regarding the product cost is very crucial in manufacturing the product. The overview of the activities also determines that whether the set price is fair or not. Moreover, the activity based costing system enhances the power of identification of the firm. Incorporating this system in the accounting methods allows the firm make link between the cost and activities. In this way the firm can cut the excess cost of the manufacturing process. Another major advantage of the activity based costing system is that it provides ample information for making the decision and maximising the profit ratio. Moreover, the firm can identify different product outline in the market.
There are several areas that should be concentrated on. These areas are very important before implementing the activity based costing system. A firm may produce more than one product. In that case it has to perform numerous activities and the costing system also varies with those. The product diversity may increase or decrease the cost of production. There may be different kinds of customers for a particular product. The diversity of customer also creates an impact on the activity based accounting system. Diversity in service provided by the company is also noteworthy in this context.
Besides, the advantages of the activity based costing system there are few limitations in this method. Doing an accounting assignment demands all the information regarding the activities. The respective accounting method may provide an idea regarding the production cost but the firm cannot make any specific outline regarding the activities which affects the costs. Selection of the most suitable cost becomes very tough sometimes for the business organisation. Basically the firms are unable to evaluate all the activities in the entire manufacturing process.
After discussing all the above factors it can be mentioned that activity based accounting system is an important accounting method.