Analysis of The ABC System

Question: Explain, analysis of the ABC system. Answer: Following an evaluation, I think it is important for the firm to introduce the ABC pricing system to their accounting ventures. The ABC system has various benefits that sideline the negative results of the application of the system. It will offer the firm more accurate costing of the two products, rather than rely on the top market players; it offers the firm a better understanding to the overheads; the system offers utilization to the unit cost rather than just the total cost and makes visible waste and the non-value adding engagements (CHANG, C, 2010, 47). The system will support management performance and the scorecards, and offers an easy facilitation of the benchmarking processes. However, the operation of the system requires immense resources and is costly to maintain (RUHANITA MAELAH, 2011, 73). However, with the cash flow in the firm, it will be easy to operate the ABC comfortably. The ABC produces numbers with product margins that do not flow with the data from the existing traditional accounting methods, and the data from the system can have an easy misinterpretation. The overhead costs of the firm are not enough to cause worry hence the system will run smoothly. The incremental value the firm will achieve by the allocation of overhead will be a little obsessive-compulsive personality disorder of the firm rather than an act of good accounting. Additionally, the firm has fewer principal activities that use up the overhead costs. Therefore, the lower the activities that use the overhead costs, the easier it will be to implement the ABC system in the firm. The firm will trace, through the new system, the activities that lead to the overhead expenses to the particular product in the firm. After the tracing, the ABC offers appropriate measures known as cost drivers to tie the overhead expenses to the product point and offer a deemed solution (Maingi, J, 2013, 58). In conclusion, the ABC system will be an appropriate tool for the firm to manage the overhead costs, and increase the general profitability of the manufactured products. The ABC will offer numbers that will transform the way the owner of the business thinks and offer more creative solutions than those from the emulation of the competitors in his line of business. References CHANG, C. M. (2010). Service systems management and engineering: creating strategic differentiation and operational excellence. Hoboken, N.J., John Wiley Sons. Maingi, J., 2013. Advantages Disadvantages of activity based costing with reference to economic value addition. GRIN Verlag. RUHANITA MAELAH. (2011). Research in management accounting Malaysian environment. Newcastle upon Tyne, Cambridge Scholars Pub. https://public.eblib.com/choice/publicfullrecord.aspx?p=1114410.