Traditional Procedures for the Settlement of Indirect Costs

“Dealing with today’s competition is challenge enough, even when you have all the right information. But if you are responding to wrong information, you could well be in losing battle”( b.b. turney). These words accurately show importance of relevant information and systems which allow managers to make good decisions. One of the most important issues of the analysis of the company’s business activities is determine their indirect costs. For decades the most used cost accounting method were traditional systems- rely on volume-related measures to trace overheads to products. However, “while this approach has the advantage of simplicity, it will result in systematic miscosting, where overheads are not volume driven”(innes&Mitchell citat in Krishnan, p.77). Therefore, traditional cosing methods are not capable of accurately determining process costs, and without that full term effectiveness and efficiency implemented actions is simply impossible. Moreover, they “tend to report less accurate costs, because they use cost drivers where no cause-and –effect relationships exist to assign support costs to cost objects”( drury p.253).Traditional procedures for the settlement of indirect costs were for decades the only procedures to assign costs indirect costs to 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 firms costs were much higher than the share of indirect costs. Indirect costs accounted for a small part of the cost product, theircalculation did not pay too much weight, and the resulting distortion in the calculation of the product were not significant. Rapidly changing environment and a high degree of complexity proces...

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...s the amount of work, effort as data collection and analysis requires a large commitment of employees. Furthermore, variability of activity will need to continuosly update the model as it does not allow for long-term use of automated procedures. Therefore, “given the general perception of the amount of work involved with ABC it is not suprising that implementation of the costing system is relatively more difficult for the small companies who experienced lack of trained staff and computer resources.”( cob,p.17) Besides that, doubts about benefits of the model cause, that other companies activities are in priority before the creating sufficient cost model. Implementing the ABC is difficult from the technical side of the process. However, these problems becoming less serious in favour of the problem of overcoming resistance for a change, which seems to be major issue.