ADVANCED WORKING REPORT ON ACTIVITY BASED COSTNG AS A TOOL OF CONTROLLING COST & IMPROVED PROFITABILITY AT ACME LABORATORIES LTD

Abstract

Activity-based costing (ABC) is a forward-looking product costing method. Unlike traditional volume-based approaches, ABC concepts guide managers in seeking the best strategies to pursue in the future. This product costing method can be a valuable tool in planning and managing costs not only in the manufacturing area, but also in all aspects of business operations, from product design to distribution. Although its main advantage is its ability to provide more realistic product cost information for financial reporting purposes, use of ABC can lead to a better understanding of the strategic linkages existing between the various cost areas in the organization. It enables managers to have a holistic view of cost management. While conducting my research paper on “Activity Based Costing-as a tool of Cost Control & Improved Profitability” at The ACME Laboratories Ltd.”, I have tried to diagnose the problems persistent with existing costing system and subsequently sought the consequence after implementing more forward looking costing approach which is Activity Based Costing (ABC). I had thorough research on how ABC costing control the cost and thus improve profitability on a manufacturing setting. Acme Laboratories Ltd is one of the biggest pharmaceutical products manufacturing company. Therefore, I chose Acme Laboratories Ltd, where the costs segments are easily separable and the impact of ABC costing method on profitability is firmly realizable. The research came into the findings that when the ABC system was mplemented the percentage of controlling employees’ time devoted to data gathering decreased and the percentage of time devoted to analytical activities in aid of raising the value of the enterprise increased. Studying the statistical analysis, and other financial ratio analysis, it can be confirmed that The ACME Laboratories Ltd have progressed well especially in its internal system development and with better-cost control. While using the modern method, we have found that application of Activity based costing ensure true cost allocation using relevant cost drivers, which effectively facilitate product based decision making as well as over all cost awareness.