Discuss how a small UK education-sector organisation might use ABC to (a) produce product costs for services, and to (b) evaluate the internal efficiency, quality and profitability per product or service line. Both benefits and drawbacks must be considered
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Traditional cost accounting has been based on allocating a subjective or calculated range of indirect expenses to direct costs. Activity Based Costing (ABC) offers an alternative approach. Much of the textbook work on ABC refers to examples from large-scale manufacturing, yet according to the UK government Statistics Office (Chamberlin, 2011) small and medium–sized enterprises (fewer than 250 employees) account for 99.9 per cent of all enterprises in the UK private sector, whilst representing 59.8 per cent of employment and 49.0 per cent of turnover. The UK services industries account for around 75% of total value–added in the UK, (while the Public Sector accounts for about 45% of total UK spending).
Required:
Discuss how a small UK education-sector organisation might use ABC to (a) produce product costs for services, and to (b) evaluate the internal eff