That is to say, a company can tell what it will gain or lose even before carrying out a certain activity. For instance, a company may calculate the cost of a certain product without looking into account the extra expenses that could or will occur consequently, the traditional method gave the wrong data concerning the exact cost as opposed to ABC, which normally calculates every expense (Bromwich, & Hong, 1999). However, even before the aforementioned individuals introduced the ABC accounting methods, people long way before used to do accounting.
It has been often claimed that accountancy can be traced back to the ancient Egypt. Iran is also mentioned as another place where accounting used to exist many thousands of years ago. This happened during the reign of a certain emperor named Augustus. After, that accounting found its way to Europe mostly in England in 1880 where business people started using it (Huntzinger, 2007). 2. Traditional Accounting Overview (a) Historical practice As explained above, traditional accounting existed way before the introduction and the subsequent development of the ABC method. Firstly, this term is also called conventional in some quarters and it normally allocates indirect expenses to items produced in a factory based on the volumes.
Unlike the ABC, this method does not put into consideration other expenses that may arise from the production of a particular product. Instead, the allocation of cost is done as per the output (Huntzinger, 2007). It is for this reason that the proponents of the ABC expressed the weakness of this method. (b) Reasoning It could also be seen that the traditional accounting was focused primarily on the eventual outcome as opposed to exact expense incurred in the production of a product.
Carnegie and Napier (2009) noted that in the 21st century, the traditional accounting would not give managers the best results especially because of the consumer behavior. In these times, consumers are having different tastes many of which would require additional expenses being incurred. As a result, it would be pretty hard to estimate the exact cost of producing a particular service using the traditional accounting. The companies that support and implement the ABC technique are often seen that they do not lose bids due to overpricing.
In short, there the ABC helps in calculating the cost and if a company is involved in a bidding situation, it becomes easier to bid because the exact cost has been calculated.
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