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Analyze and evaluate the impact on an organization as to why so few firms use both ABC and standard costing together

Sharon Williams's Profile

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Is there a question in there?

Sharon Williams
Title: Human Services Counselor III
Company: State of Florida
(Human Services Counselor III, State of Florida) |

Yes I am asking what impact on an organization as to why so few firms utilize both activity-based costing system and standard costing together?

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Sharon
What's the background/context to your question?

Sharon Williams
Title: Human Services Counselor III
Company: State of Florida
(Human Services Counselor III, State of Florida) |

Mr. Green:
What influence on an organization have as to why so few of them will consider utilizing both an activity-base costing system and a standard costing system together? Think of it in terms of a large firm versus a small firm.

Sharon Williams
Title: Human Services Counselor III
Company: State of Florida
(Human Services Counselor III, State of Florida) |

Let me rephrase the question, in organizations today and in the past have utilize the use of the old traditional costing system and then some incorporated especially large firms the activity-based costing system for financial affairs within the organization. It has been known in past times, that only a firms utilize them both together, and I am trying to find out why? Is there an advantage to utilizing them together or not? I hope this clears up and convey what I am trying to say? Thanks!

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Here's a short article that may help:
http://smallbusiness.chron.com/activitybased-costing-compliance-gaap-63254.html

Sharon Williams
Title: Human Services Counselor III
Company: State of Florida
(Human Services Counselor III, State of Florida) |

No that article was no help at all, but thanks anyway!

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Sharon
This link explains some of the differences between the 2 costing approaches. http://strategiccfo.com/wikicfo/activity-based-costing-abc-vs-traditional-costing/

Using both together could be extremely costly, and perhaps confusing to the intended consumers of the information.

One aspect of standard costing that could be underutilized is the analysis of variances between actual and standard. Example: a major variance may occur in a month, perhaps even in a single production order. That variance will hurt the bottom line (in terms of under-recovered overhead), but it won't affect revenues/top line because pricing will be based more on standard (what SHOULD the product cost?).

To minimize the risk of poor standards, measure them regularly and adjust if necessary.

PS - I tend to favor Standard costing, and note that ABC has not gained broad acceptance as far as I know.

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