Terrorism, conflicts in certain parts of the world, aviation fuel cost crisis, and competition has forced customers and airlines manufacturers to consider their pricing and innovative ways of sustainability. Service efficiency is a consideration for many in aviation. Security has pushed the cost upward (Gillen & Morrison, 2015). Activity-Base Costing (ABC) is the innovative means of management accounting applied in organizations across the global marketplace. Aviation is a significant industrial applicator of the costing system. ABC applicability is best in industries with substantial cost and production pathways. Examples are Boeing and Airbus. It uses a chain system of cost attribution to products depending on the attachment of costs to the resources, organizational activities, and rounding up the corporate activities back to products. The accounting system is a two stage pathway from the point of cost assessment to the events that ultimately end in the product or service. The drawback of ABC is the duration and costly nature of its cycle.
Thus, in ABC system focus is on the activities that lead to the product. That is why it considers cost from a backward point. The cost of a product is in the management of the activities that produces the product. It takes into consideration the fact that it is activities that generate costs of production of a service or product. Organizations with a complicated service manufacturing process like aviation need to have a full grasp of the relationship between activities and outputs and appropriately manage the production overhead costs. Time wastage and losses can is controllable with Activity-Base Costing. The manufacturing process in aviation is costly and time-consuming. A significant amount of time is used in both the area of service delivery and from the production points because of the threats from terrorists and other challenges.
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Reference
Gillen, D., & Morrison, W.G. (2015). Aviation security: Costing, pricing, finance and performance. Journal of Air Transport Management . Vol. 48 , p:1–12 http://dx.doi.org/10.1016/j.jairtraman.2014.12.005
