Managerial accounting

Managerial Accounting Name: Course: Tutor: Date: Managerial Accounting Activity-Based Costing (ABC) is an accounting method used for allocating services in a company. The system deals with cost management, which involves reduction and controlling the company’s costs and at the same time offering quality services. ABC is a tool, which enables managers to identify and determine costs of various activities and services; this system is thus the most accurate accounting method and several companies have shifted to this method abandoning the traditional cost management method. The traditional cost management method was associated with several problems; the system was unable to determine accurately the company’s cost of services. Through ABC systems, costs of services dependant on this system identified and offered to the service users. In the case of service industry, ABC system becomes a valuable system owing to the level of competition and restrictions available in these industries it thus becomes the most preferred system to adopt. Service companies have difficulties in deciding the most appropriate accounting system to adopt due to the problems encountered in evaluation of costs related to direct materials and labour, as these are not the principal costs in the industry. The need for these industries to know the products, which are profitable and the ones, which need a lot of emphasis, makes the system the most appropriate for such companies. The service industries have overtime used the system effectively these companies include Microsoft Corporation. Bill Gates and Paul Allan founded Microsoft Corporation an American multinational corporation based in Redmond, Washington in 1975 (Cope, 1996). The company is the world’s largest software maker; it is specialized in the provision of a variety of services related to computing (Cope, 1996). It is acknowledged worldwide as one of the most valuable companies in software making. The corporation was developed with an intention of developing and distributing BASIC interpreter it has, however, diversify its operations over time. The company rose to dominate the personal computers and operating system market having MS-DOS during its early stages of development. The company is also known for its specialization in PC operating system, Microsoft office, internet search, video game industry, and window phone OS. These diverse services offered by the company has made it diversify and dominate the market, not only in the US but also worldwide. Microsoft Corporation can benefit a lot by adopting and implementing the ABC system. Cost management can efficiently be handled in Microsoft Corporation by putting in place and implementing a time, driven ABC cost system. Microsoft with the knowledge of these activities and rate them, the management has to map out its activities on after the other while it allocates each the seriousness and the importance it has in the corporation. The implementation process will thus start with the identification of the major activities in the system. These will include the most marketable and the most profitable software and other services rendered. With the activities identified, cost is allocated to each activity and groups of activities grouped together put together in cost pools. Groups are derived through assessing activities that are related and cost put together in pools. Software and other services that are related are grouped together. With the groups, cost drivers are then identified but they vary in relation to the accuracy and complexity in place. These drivers such as the profitability with the aid in the rating process where rates are calculated. The management then applies the rates according to drivers for the software and other services that are in place. The corporate services are divided into units and each unit evaluated individually. The overhead cost for each unit is reached by dividing the total cost of the service by the total units in place (Peter, 2005). Implementation of ABC cost system in the service industry is at times complicated. Thus, it is necessary for the management to embrace it and constantly review a cost system reflected for applicability in order to reap its benefits. The use of ABC cost system can be immensely beneficial to a corporate as it reflects its performance. Costing is a business tool that is instrumental in planning and control of the business activities. Through it, the management is able to plan, allocate, and control activities and its costing in business. By so doing, ABC will provide levers for gauging and implementing the corporation’s strategy. Microsoft is; thus, able to analyze and decide on what is appropriate to engaging at a time in a condition. By utilizing it, Microsoft will be able to reduce or control its cost after making adequate analysis. Through this, ABC costing aids in making correction, pricing, and other relevant decisions that were factored in the cost preparation. By assessing the products availed by the corporation and choosing the most marketable and cost effective, this costing will be an ingredient for profitability. ABC costing system is an improved version that is easier to maintain and update; thus, making the running of the organization and management to be simple (Peter, 2005). All these factors contrib...