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| Format: | Artículo científico |
| Language: | en |
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Universidad de Puerto Rico
1999
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| Online Access: | https://www.redalyc.org/articulo.oa?id=63177003008 |
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Table of Contents:
- Critical Analysis of Literature on Traditional and Activity-Based Costing Methods and its Impact on Managerial Decision-Making Michelle Rosario Rodríguez Administración y Contabilidad Accurate cost accounting information is considered vital by manage- ment to generate a myriad of decisions that will ultimately have an impact in an organization's short and long term goals. At one time this information was generated by Traditional Costing methods that allocated direct labor, direct material, and assigned overhead costs using predetermined overhead rates based on direct labor hours. However, due to the technological changes that occurred within the manufacturing environment, direct labor ceased to be a dominant portion of production costs, while the need for support services such as marketing, inspection, sales, and engineering increased. These support services costs are considered indirect costs under Traditional Costing methods and so are assigned to products or services using predetermined overhead rates. Unfortunately, due to this method of allocating costs, labor intensive and high volume products would absorb a greater amount of overhead costs than those products that were low volume, machine built, and required expensive support services. Many leading accounting researchers began to suspect that the cost in- formation generated by Traditional Costing techniques was inaccurate. Therefore, Activity-Based Costing was established. ActivityBased Costing focuses on business activities because they cause organizations to incur in costs to generate products or services. Due to the characteristics of this costing method, the majority of indirect costs, such as support services costs, are allocated to products as if they are direct. This assures that all pertinent costs are included when determining total product cost, thus ensuring accurate and relevant cost information. Hence, the purpose of this research paper is to determine if Activity- Based Costing when compared with Traditional Costing methods provides more accurate cost information for management to base their decisions on. In order to fulfill the purpose of this research paper a thorough under- standing of cost accounting and its primary role of cost allocation through the use of Traditional and Activity-Based Costing methods was obtained. Then an extensive research was made to obtain a understanding of the decision-making process and how cost information can impact this essential managerial function. Through the use of a case study titled Highland Insulators PLC, a study titled Data Fixation and the Use of Traditional Versus Activity-Based Costing Systems, and cases of companies that claim Activity-Based Costing is a better cost information tool for management. It was concluded that although Activity-Based Costing has a series of limitations that must be addressed, this costing method does provide clearer and more accurate information for management to base their decisions on than Traditional Costing methods. However, as with any major initiative, a cost-benefit analysis must be done to determine if this costing method is appropriate for the organization that desires to i 1999 otro 1541-8561 https://www.redalyc.org/articulo.oa?id=63177003008 en http://www.redalyc.org/revista.oa?id=631 Forum Empresarial application/pdf Universidad de Puerto Rico Forum Empresarial (Puerto Rico) Num.2 Vol.4