Module 4 Discussion Forum. 500 Words Minimum

Module 4 Discussion Forum. 500 Words Minimum

Discussion: Activity-Based Costing (ABC) and Master Budgeting

Read at least 2 academically reviewed articles on ABC and 2 articles on Master Budgeting and complete the following:

A. Write an annotated bibliography of each article.

B. Based on the articles you reviewed, discuss what you learned

C. In addition, discuss how a manager would use the concepts in the articles you reviewed in managerial decisions.

Use APA throughout. Please organize your discussion as listed above.

Review and respond to at least 3 of your classmates’ posts.   200 Words Each

Reply to post 1:

Activity-Based Costing (ABC)

Durana, M. (2019). Research Review on Activity-Based Costing System (ABC): ABC’s Development, Applications, Challenges, and Benefits. SSRN Electronic Journal.

The above article focuses on the various aspects involving the Activity-Based costing, including its history, challenges, applications, and other factors. The authors put it that the ABC system was developed to help small and all organizations at large have reliable and robust methods of allocating costs. The method is very accurate and reliable since it provides a manager with authentic and all costs involved in the production process. Additionally, through the ABC model, an organization gets relevant insights about how to price their products since they know of all their costs, including the overhead costs which are not included in other methods. The challenges presented by the author are that the organization faces the problem of having the real figures in some activities, and this makes them assume hence arriving at wrong estimates and calculation altogether. Another problem of this method is that it gives real costs, thus reduces the chances of overpricing which organizations do not want since they want to manipulate their customers. However, one of the critical applications of the ABC system is ascertaining costs in the production process for the organization to have the prices of their products set.

Babu, M., & Masum, M. (2019). Crucial Factors for the Implementation of Activity-Based Costing System: A Comprehensive Study of Bangladesh. ABC Research Alert, 7(1).

The above article looks at the fundamental factors involved while implementing the activity-based costing system in organizations based in Bangladesh. The authors found out that the process of implementation varies from one organization to another and that the whole process is influenced by a wide array of factors depending on the size of the organization. In Bangladesh, the economy is made up of much-growing businesses or the small and medium enterprises that are hugely relying on activity-based accounting to ensure that they ascertain direct costs and overhead costs appropriately. The authors found out that the whole process of implementation is made of three main factors which are initiation, design, and finally, the real implementation phase. These three phases help an organization to adopt a stepwise process of implementing the ABC model hence be able to use it appropriately.

Master Budgeting

Jena, P. (2016). Reform Initiatives in the Budgeting System in India. Public Budgeting & Finance, 36(1), pp.106-124.

The above article looks at the budgeting reforms made in India and how they helped in improving the whole process. The authors focus on the economic problems facing India before proceeding to highlight the reform process. India is one of the fast-developing counties in the world but faces a wide array of the problem, including, misappropriation of funds, looting of public find and corruption. The country has had corrupt finance minister that has been over budgeting about government projects so that they can loot federal funds. However, the budgeting reforms saw the country change its budgeting process to a systematic and straightforward process where the allocation of funds and resources was done in the most transparent and accountable way. India adopted the use of computerized and automated financial reporting systems to help know about the country’s taxes and how to equitably distribute resources without any significant challenges as they faced before.

Tenzer, I. (2016). Five Ways to Master the Art and Science of Budgeting. AORN Journal, 84(6), pp.S47-S48.

These article highlights the essential skills and competencies that can be exhibited by individuals to become budgeting gurus. Today budgeting is everything, and it is applied in almost all sectors starting from governments, business organizations, and individuals. The author presents key factors and knowledge that people aiming at becoming financial officers can use to master the art of budgeting. First, the author stresses the importance of business knowledge and competence. To become a competent budgeter, then the individual must be well conversant with financial issues and theories. Secondly is that an individual must be able to know the appropriate methods to be used to ensure that money and resources are used in the right way without any losses. The third key factor is that the individual must be straight forward, genuine, and accountable. This helps the individual to be focused and avoid any shortcuts for self-gain or any other agendas.

Part B

Based on the review of the activity-based costing articles, I have learnt that ABC is gaining more popularity within the manufacturing sector. This model basically assess resources consumed by activities and how they are allocated to products through cost drivers. Manufacturers will be able to make informed decisions on production activities hence increase productivity and competitive advantage. Jumping on to the master budgeting articles, I took away insights that such model is utilized as a planning and control tool. An organization will thus utilize information from the master budget to oversee a firm’s financial performance where it will evaluate a firm’s expected value for a given period.

Part C

Information from both sets of articles comes out as accurate and reliable. For the activity-based costing articles, they provides a manager with authentic and all costs involved in the production process. It therefore vital for managers to establish a transparent and straightforward process of implementing the ABC system for it to work well. Talking of the master budget, information from these articles is utilized by managers in planning processes. Such processes give insights on sales, expenses and other financial events thus mangers use them as guiding principles to accomplish their desired outcomes at the end of a financial period.

Reply to post 2:

Annotated Bibliography

Course: Managerial Accounting (Fully Online)

APA Reference

Fu G., Liu J., Yang J., Liu X., Yao D., Ni J., 2020, Eco-Cost Analysis of Split Air-Conditioner Using Activity-Based Costing Method, Retrieved from https://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=9015994

Split Air Conditioners are primarily used for controlling air in buildings, but in recent years the manufacturing of these split air conditioners has been leaning towards considering energy savings and also incorporate materials which are environmentally friendly. But creating such products requires increasingly expensive materials, which manufacturers are needed to endure. The author suggests using eco-cost assessment based on activity-based costing can be used to reduce these overall costs. Using the K nearest neighbor algorithm and using activity-based costing, the author is able to assess current SAC manufacturing. This method helps evaluate environmental as well as non-environmental cost assessments over the whole cycle. Using simulations, the author is able to assess the eco cost of SAC, thus helping manufacturers improve upon energy saving and emission reduction of these SAC.

APA Reference

Wiecek D., Wiecek D., Dulina L., 2020, Materials Requirement Planning with the Use of Activity Based Costing, DOI: 10.2478/mspe-2020-0001

The machine industry is characterized by differentiated assortment of the used materials. Analyzing materials requirement considering reasonable materials management in enterprises using a wide range of different kinds of materials deserves a lot of effort and time.

The machine industry uses a multitude of materials and analyzing of these materials remains paramount for organizations including requirements considering of reasonable materials which involves a lot of effort as well as time. Some new tasks usually include material supply integration with the operation supply which in the case of unit and small lot production, determination of these becomes very tedious and cumbersome. This is especially true because in such production environments, these need to be carefully planned and optimized due to the use of several kinds, sizes and types of materials. For such scenarios the author suggests activity-based costing, where individual process or batches can be separated based on realized process. Based on activity-based costing, the author is able to minimize the number of kinds and sizes of materials used by suggesting alternate materials and hence helping to lower production costs.

APA Reference

Bužinskienė R., 2019, Master Budget Formation in Private Companies, Retrieved from http://eds.b.ebscohost.com/eds/detail/detail?vid=0&sid=535edb97-d76a-48d9-8e00-9dfaf717bfe7%40pdc-v-

sessmgr06&bdata=JkF1dGhUeXBlPXNzbw%3d%3d#AN=142646113&db=a9h

This particular article looks at the usage of master budgeting in particular, which in general is used as a tool for companywide performance of the budgetary control in corporate settings and at the same time understand the understand and achieve coordination among different business units in an organization. This study also suggests ways for accountants and heads of organization on how they could leverage master budgeting in their process to create a more efficient budgeting plan for the next financial year. Through the analysis, the results state that using master budgeting the company has shown positive results, but pints out further analysis is required along with due concentration on financial resources as they will be required for cash shortage.

APA Reference

Sandu L. D., 2009, Multidimensional Model for the Master Budget, Retrieved from http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?vid=9&sid=c5b07708-e574-445f-b422-c0ec98109b3d%40sdc-v-sessmgr02

With a dynamic and changing environment organizations are having to constantly reinvent and reconsider decisions due to extreme competitiveness and the need to quickly adapt and change to growing demands and needs. Using timely and quality information, the author feels better decisions can be made. While Business Intelligence applications help make better quality business decisions, business performance management systems help the organization align with its goals. With the help of multidimensional models and cubes the author suggests organizations can analyze huge volumes of data which can be used for forecasting and planning and even create master budgets. The author thus suggests a sample multidimensional model that supports the construction of a master budget of an organization using various simulations and forecasting.

Analysis & Learning

Activity based costing which is an accounting method primarily used in the manufacturing setting is used to enhance cost information and create near true costs which would otherwise not be captured. This is done by assigning various indirect costs and overhead to products and services (Kenton W., 2020). While this is important for organizations, many would rather forego this accounting calculation as gains from it far exceed the effort to calculate such costs.

Master budget on the other hand helps to aggregate all the low-level area budgets according to functional areas, and hence is used to direct these finances to organizations projects and also look at the performance of various functional departments within the organization.

Managerial Usage

As a manager, new business opportunities are usually ignored because of master budget, since all resources are usually tied to projects. With activity-based costing though, by assigning true costs, organizations are able to understand which products or services are causing cost increases. For example, a toy manufacturer which produces 90,000 units using 25% employees and minimal manufacturing might feel this is more expensive than 10,000 units by 75% if ABC method of assigning cost is not used. In such scenarios even though the first product is cheaper per unit, due to the number of products it is considered more expensive if ABC is not used.

Reply to Post 3:

Activity-Based Costing and Master Budgeting

Activity-Based Costing

The article about profit priorities from activity-based costing is written by the author Robin Cooper and Robert S Kaplan which is reviewed by Harvard business in 1991. The author showed the importance of ABC in his article of how it helps to calculate the cost of the products or materials for the organizations. It not only calculates the cost but also helps to plan the profits accordingly. This technique is still followed by many companies. Another article is about the time-driven activity-based costing which is written by Steven R Anderson and it is available at SSRN, 2003. The author says that the new type of ABC model is much beneficial than the traditional ABC as the new model gives details about the spending, maintenance and if the company is facing any problems, etc (Clark & et, 2011).

After reviewing these articles I learned that the initial ABC model will help the company’s know people’s interests and choices and with that, they can change or use different techniques to attract the customers. The managers can use this model to take proper decisions and manage the costs to earn and make better profits (Husted & et, 2015).

Master Budgeting

The article about the origin of present value as capital budgeting decision criteria:  A journey to Pisa in the Middle Ages which is written by the author Hortua, 2019. This article tells about the various methods to invest and he compares to the earlier days and says that the new era has more techniques and more advanced equipment. Another one is regarding the high price to pay? Britain and the European budget, 2012. The UK is facing more problems with the budget and how it faced some tough situations but later the UK has improved and now it is financially stable after using this master budgeting technique. I think this has helped many by taking the best decisions and also very few chances of loss. The managers will find this very useful as they can help their company grow to great standards (Palaiologk & et, 2012).