Abc does not conform to gaap because it

Please give an observational and educated response to each post below on the same chapter 6 question you answered previously. Be respectful. Begin each response by saying “Nice post,” or “Good answer” and then begin your observation on their answer.

- Why is the ABC described in the reading this week, unacceptable for external financial reports? The activity based on costing systems that is provided in our readings, do not completely adhere to GAAP and therefore cannot be used in external financial reports. In what fundamental ways does ABC differ from traditional costing methods, such as those described in Chapter 4? Activity based costing does not assign organization sustaining costs to products, for example building security wages. Activity based costing also only charges products for the manufacturing capacity used, as opposed to traditional costing methods where even unused capacity is assigned to product cost. Activity based costing allows for a more resourceful approach to cost pools and does not require one portion base to be used like traditional methods that use machine hours or direct labor hours (Noreen, Brewer, and Garrison, 2017). Why are top management support and cross-functional involvement crucial when attempting to implement on ABC system? Top management support and cross-functional involvement are crucial when attempting to implement on ABC system because if management is poorly explained, then the employees that were too scared of outsourcing or layoffs and the source of information used to create the activity based costing system, there s a much greater chance of skewed or manipulated data (Noreen, Brewer, and Garrison, 2017).

- 1. Why is the ABC described in the reading this week, unacceptable for external financial reports? Activity-base costing is designed for managers to look internally and formulate strategic decisions based on not only activity-based costing but also a second costing method to look externally. The combination of the

two methods allow mangers to make strategic decisions with a level of comfort knowing two methods are guiding their decision-making process. Oppose to the traditional absorption costing, reviewed in earlier chapters, activity-based costing differs in three distinct manners. First, activity-based costing manufacturing and nonmanufacturing costing is assigned to products. Second, not all manufacturing costs are included in product costs, and third, there are many overhead cost pools utilized in activity- based costing. These differences in activity-based costing do not allow it to be utilized for accurate external costing. It provides a very accurate internal and detailed report oppose to being used as a less external costing report, traditions and years of fine tuning a company’s computer systems present a difficult change, and does not conform to generally accepted accounting principles (GAAP). Two costing methods looking at data from different perspectives allows mangers to make high-level decisions, so there is no need to use a costing system in manner in which it is less accurate or in a manner it was designed for.

2. In what fundamental ways does ABC differ from traditional costing methods, such as those described in Chapter 4? Activity-based costing differs in many manners than its sister traditional costing methods. Activity-based costing allows nonmanufacturing and manufacturing costs to be allocated to products. Not all manufacturing costs are included in the above product costs, and it presents a number of activity pools, which require addressing their own particular of measuring activity.

3. Why are top management support and cross-functional involvement crucial when attempting to implement an ABC system? It is essential to have support from high-level management when implementing activity-based costing. This costing system is a change for some in management and could produce backlash if not supported. With a costing method that measures things differently than external costing methods the change may cut across all departments of a business and should be explained why the change and provide the desired endstate for the change to activity-based costing. Keeping employees informed, especially when making change, will lower the amount of anxiety and possibly provide a forum for discussion on the new method. Keep your employees informed.