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  • Essay / Traditional settlement procedures...

    “Keeping up with today's competition is already a challenge, even when you have all the right information. But if you react to wrong information, you risk losing the battle” (bb turney). These words accurately show the importance of relevant information and systems that enable managers to make good decisions. One of the most important issues in analyzing a company's business activities is determining their indirect costs. For decades, the most widely used cost accounting method has been traditional systems: they rely on volume-related metrics to trace overhead costs back to revenue. However, "while this approach has the advantage of simplicity, it will result in systematic errors in costing, where overhead costs will not be determined by volume" (quoted from Innes&Mitchell in Krishnan, p. 77) . Therefore, traditional costing methods are not capable of accurately determining the costs of the process, and without this, the long-term effectiveness and efficiency of the implemented actions is simply impossible. Additionally, they “tend to report costs less accurately because they use cost drivers when no cause-and-effect relationship exists to assign support costs to cost objects” ( Drury, p 253). Traditional procedures for settling indirect costs were intended for decades as the only procedures for assigning indirect costs to the product. These methods were appropriate at a time when the company produced a limited number of products and the cost of materials and direct wages, for example in companies, were much higher than the share of indirect costs. Indirect costs were a small part of the product cost, did not give too much weight to their calculation, and the resulting distortion in the product calculation was not significant. A rapidly changing environment and a high degree of process complexity...... middle of paper ......s the amount of work, effort as data collection and analysis requires commitment important to employees. Additionally, activity variability will require continuous updating of the model as it does not allow long-term use of automated procedures. Therefore, "given the general perception of the amount of work involved in ABC, it is not surprising that implementing the costing system is relatively more difficult for small businesses that have experienced staff shortages qualified and IT resources. » (cob, p.17) In addition, doubts about the advantages of the model mean that the activities of other companies are prioritized before the creation of a model with sufficient costs. Implementing ABC is difficult from a technical point of view of the process. However, these problems become less serious in favor of the problem of overcoming resistance to change, which seems to be a major problem..