Trends in Management Accounting: Activity-Based Costing (ABC)

Trends in Management Accounting
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Trends in Management Accounting
Over the year, the management accounting sector has been experiencing plenty of transformation where several management trends occur and then fade away instantly. For instance, enterprise performance management (EPM), behavioral change management, IT chargeback, and activity-based costing are popular trends in management accounting. This paper analyzes activity-based costing (ABC) as one of the trends described by The Institute of Management Accountants (IMA).
ABC is a costing approach that grants indirect and overhead costs to associated services and products. This approach allows the link between overhead activities, costs, and manufactures commodities allocating indirect costs to goods less subjectively than costing strategies (Kenton, 2023). Nonetheless, various indirect costs, including office staff and management incomes, are complex to allocate to a commodity. ABC offers various organizational benefits but is also associated with some notable cons.
One example of the real-world scenarios of ABC is for an organization with per-year expenses. For instance, consider company XYZ's $60,000 electricity bill in 2022. The number of labor hours causes a direct effect on the electricity bill. In this year, there were 2000 labor hours worked, which is the cost driver. Therefore, determining the cost driver rate would be obtained by dividing the $60000 a year electricity bill by 2000 labor hours, creating a cost driver rate of ...