Implementation of Activity- Based Costing at General Motors
In the second week of our course, we dealt with the concept of Process Costing and Analysis which is the method of collecting and assigning manufacturing costs to the units produced. The process costing method is typically used for processes that produce large quantities of homogeneous products (Wilkinson, 2013). Along with it we also studied Activity-based Costing and Analysis which is an accounting method that allocates the costs of overhead activities and assigns those costs to products.
This DQ2 mainly focuses on the concept of Activity Based Costing and analysis as it is connected to PA1 assignment.
The main focus of this article is that it provides a structured account of experimentation with adoption and adaptation of Activity Based Costing at General Motors. This article tries to identify the if the company has the potential to adopt and implement the activity-based costing system in these companies and understand how implementation of ABC costing would benefit the Company.
General Motors Co. is a manufacturing industry which produces vehicles in 30 countries and has leadership positions in the world’s largest and fastest growing automotive markets. Before implementing ABC costing, General Motors was using traditional costing which assigns costs to products based on an average overhead rate lacks the ability to calculate the cost of the product in terms of the variety of products (Hayden) lead to vague conclusion. For understanding the feasibility of implementing ABC costing systems, ten corporate and division-level salaried employees were for 40 hours which have the authority and responsibility of decision-making at General Motors.
FINDINGS AND CONCLUSION
From the research what we figured out is that the General Motors Company which was previously using Volume Based Costing favored ABC method over it has helped in tracing resources directly to cost objects. A cost object is typically a product or process, while the activities are discrete actions which must be performed to create the cost objects (Zahran, 2001) .ABC costing supports in making indirect cost to direct costs and promotes decisions that are consistent with lean production, such as: reducing inventories; increasing common components; increasing quality by minimizing total quality costs; minimizing cost of ownership through supplier management, etc.
Hayden, A. (n.d.). Activity-Based vs. Traditional Costing. Retrieved from QuickBooks Resource Center: https://quickbooks.intuit.com/r/pricing-strategy/activity-based-vs-traditional-costing/
Wilkinson, J. (2013, 7 24). Process Costing. Retrieved from The Strategic CFO: https://strategiccfo.com/process-costing/
Zahran, A. (2001). A framework for assessing cost management system changes: The case of activity based costing implementation at General Motors. Journal of Management Accounting Research.