Activity Based Costing Essay Example | Topics and Well Written Essays - 1750 words

Activity Based Costing - Essay Example In the other hand shared resources historically was a problematic grey area which caused problems in precisely determining its overall impact to the costs of an operation. A technique that is able to provide financial professionals and managers with better insight about the costs of an operation is called activity based costing (ABC). This purpose of this is to discuss activity based costing by covering the following five topics: history, features, implementation, evaluation and managerial applications. Activity based costing was first utilized in the 1980’s in order to understand the internal breakdown of costs associated with overhead drivers that serve as common resources. Robert Kaplan and Robin Cooper in 1987 for the first time introduced the concept as a chapter of its accounting textbook Accounting and Management: A Field Study Perspective (Weiner, 1995). The industry trend at the time was that overhead costs were rising, thus there was a need of a cost system with enhanced capabilities that enabled it to figure out the reason what this was occurring. In 1990 the first journal article on the subject came out in 1990 and it further revolutionized ABC because it provide a discussion of an application of ABC outside the manufacturing scenario by applying it service based business, financial institutions. The article appeared in the Journal of Bank Cost and Management Accounting and it was written by Richard Sapp, David Crawford, and Steven Robishke (Weiner, 1995). Activity based costing is a completely different accounting system that has its own unique methodology which does not follow the principles associated with traditional cost systems known as absorption costing. ABC just like any other costing system has a similar objective of providing information about corporate costs. One of the differences between ABC and absorption costing is that the systems provide information for different types of users.