Management Finance Essay Example | Topics and Well Written Essays - 2500 words - 1

Management Finance - Essay Example Company should consider a system that will give accurate results and should be certain depending on the data inputted into the system. The system also should be simple to understand and be friendlier to the end users. In addition, the system should also be flexible for it to respond easily to the changes in the organization and for simple decision-making by the junior staff. Activity based costing method is more flexible hence it produces reports which can be used by the management in decision making, this is because it has got a certain methodology of costing products and services. Compared to the traditional method, activity based costing system cannot distort costs of the products that might occur if the products cost would have been done arbitrarily. There are four steps the company should follow to implement Activity based costing system. The first step is identification of activities in within the organization. The company will be required to analyse all the activities under every department. Under this step, the company should consider the processes, which are operational in the departments, this is because in some cost centres there are activities, which were operating; but they have ceased operating. Berry limited has three activities: machine setup, ordering and machine running. Berry limited cost pool comprises of material ordering cost, machine running cost and general facility cost of $280000, $316000, $42000 and $361400 respectively. Second step is the allocation of resource costs to the company activities. The cost is traced to find why it occurs; the cost can be director in direct cost. Direct cost is directly related to the output, the direct cost of product X, y and Z are $980,000, $1024000 and $1012000. Indirect cost is the cost that cannot be associated with a particular output; the cost is for the general company. Berry limited incurs a total of $1,377,400