Activity-Based Costing for the Small Business: Primer Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Owners of small businesses are likely to wonder accounting system in the planning or implementation phase of their business. A business plan forces them to use the pro forma financial statements, and soon after that, they will have to certified accounting practices to meet the needs of investors, creditors and tax authorities. But the system is designed exclusively for the needs of these often fail to provide management accounting information for the enterprise - to make sound operational, strategic and tactical decisions. Traditional accounting system relied on to do this "absorption costing". Absorption costing, however, does not include the costs of marketing and distribution. This article shows how activity-based costing (ABC) provides a better basis for measuring the profitability of production lines and avoids some of the distortions caused by the absorption value. ABC is particularly useful in service firms to identify activities, indicating the cost drivers for each activity, the calculation of tariffs charged for each activity, as well as the distribution of costs for each product / service. In particular, ABC allows us to allocate the costs of idle capacity. Simple examples are presented and worked through one step at a time, to show the differences in logic and conclusions derived from the ABC, in contrast to absorption costs. "Hide
by Sidney J. Baxendale Source: Business Horizons 8 pages. Publication Date: January 15, 2001. Prod. #: BH058-PDF-ENG