ACFI 2420
Decision Management
Coursework assignment 1
Evaluate the contribution of Activity Based Costing (ABC) to the modern business environment |
Name: Lin ZouStudent ID: p10375754Tutor: Sarah Boby |
By the rapid changing business environment during the last two decades, the indirect costs become more and more important in the modern business. However, as the lacking innovation, the traditional cost accounting cannot satisfy the demand of effective cost management to keep the competitive advantage (Narong, 2009). Thereby, some modern accounting management techniques such as Activity Based Costing (ABC), Just In Time (JIT) etc. are gradually applied since 1980’s to help managers control cost and improve the performance of the company (Drury, 2008). ABC eliminates non-value added activities and helps the company survive in the intensive competition of modern business environment (Innes and Mitchell, 1991) through it has some drawbacks in practice. This essay will mainly discuss the distribution of ABC system in the modern business environment by four main parts. First of all, the definition and explanation of concepts will be given; then the essay will discuss the benefit and application of ABC; after that, the limitation of ABC will be argued; finally, the essay will debates the appropriation of ABC.
Drury claimed the changes of the modern business environment which consist of shorter product life cycles, more customer-driver, greater diversity of products, intense global competition and the innovation of IT affect accounting systems significantly. Moreover, Lukić and Radović etc. (2011) claimed that the key of the change in modern business environment is increasing the expectations of customers. However, conventional cost management methods trend to become ineffective in the modern business (Narong, 2009). Thereby, Activity Based Costing (ABC) which supports effective cost management to increase the customer value becomes more and more...