Lowes Companies
Introduction
The Lowes Company a retail home improvement and Appliance Company that is located in the United States. In terms of financial accounting, Lowes accounts for the cost of goods bought from the supplier and later retail it to the client. The company puts down records the cost of what is bought in an inventory account and is liable for any form of revenues and allowances, discounts and shipping costs. After retailing the equipment, the concerned inventory cost is moved to the cost of Goods Sold account.
Costing System
In job costing a unique product is brought forth, which is can be varied from other products. Lowes is involved in building custom home; this is a unique product and is easily varied from the others. Records are made of the revenues and costs of each job (Heisinger, Jan 15, 2009). While on the other hand, process costing is the production of products in collections by applying consistent procedures costs with a processing system. Lowes Company is hence a combination of the two costing systems.
Review of the advantage and disadvantage of Activity Based Costing.
Activity Base Costing is an accounting system that approximates the cost of goods and services by allocating overhead costs to direct costs. It allocates the cost of each activity in a company to the goods and services based on the real consumption of the activity resource through good or service. The advantage of it is that is that it is accurate when processing costs depending on the product line and other factors. It is useful in getting to know the aspects of overhead costs. Activity Based Costing however takes a lot of time when collecting information hence an inconvenience. The form of activity taking places is quite transparent hence not acceptable to some managers. There is also hindrance posed by the capital expenditure on the activity as well as its running costs.
The Lowes Company would benefit from the Activity Base Costing through fast and easy implementation of its projects; it is also a scalable in the sense that it is able to handle several transactions at the same time. In the handling of massive orders it does not lose its accuracy as it acquires specific aspects for the orders and approximation being authenticated by discerning and sampling. The cost involved in maintaining it is quite small hence easier financially for the company.
The Activity Based Costing at the Lowes Company has benefitted the company considering that it’s now able to offer enough information that would be significant when attempting to make decisions based on the profitability the company has acquired. The company is able to control overhead costs which is made possible by the connection that exists between costs and activities (Scheid, Updated May 18, 2011). However, on the negative side the company has struggled to note the overall activities that affect the costs. It additionally faces the difficulty to choose certain cost as well as assessing the costs reliant on the activities undertaken.
Activity Based Costing is a strategy for controlling the organization a more efficient way. It is single technique that approximates the costs and performance of activities, resources and objects taken up so as to acquire correct and sensible information relevant for making decisions. On the other hand, Activity Based Management upholds brilliance in business by offering information to control long term tactical decisions concerning market mix and sourcing. Activity Based Management similarly upholds the desire for continued advancement through giving lee way to management adding to greater insights of activities by looking into the bases of demand and through allowance of management to produce behavioral inducements to advance several factors of the organization.
Bibliography
Heisinger, K. (Jan 15, 2009). Essentials of Managerial Accounting. Mason, USA: Cengage Learning.
Scheid, J. (Updated May 18, 2011). Pros and Cons of Activity-Based Costing. Accounting.
