Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to a company?...

Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to a company? Explain at least two benefits. What are the disadvantages of implementing an ABC system? List and explain at least two. Would the proposed changes make ABC a universally applicable costing method in your opinion? Why or why not? Elaborate your response.

Expert Solution

Activity based costing (ABC) is an approach for allocating the production cost to the material produced by an entity. To be able to use ABC method of costing, the entity needs to identify the activities involved in manufacturing the product. Based on this identification, the overall cost of that activity is allocated to the produced units of the material on a prorata basis. For example, an activity of product testing costs the company 1000$. This activity is to be performed for product A and B. The company has 4 products in its portfolio (A, B, C and D). Based on this information, the testing cost will be allocated only to products A & B in proportion to the units produced for these products. If A unit is 60 and B unit is 40, the cost allocated to A product will be 600$ and on B product will be 400$.

Benefit of ABC:

1. Fair allocation of actual cost of manufacturing to the product.

2. The pricing of the product can be done accurately and competatively, if the cost allocation is correct.

Disadvantages of ABC:

1. ABC is not useful for companies who work on a small scale with not much overheads.

2. ABC is not useful for companies who do not have different product types which incur different cost and require different pricing strategies.

There is no information regarding the proposed changes to the ABC costing approach, hence I am not able to answer this further. ABC is a worldwide used costing technique which helps the organizations to allocate there overhead costs in a fair and transparent manner and helps in pricing the products based on actual cost of manufacturing the product. It has its advantages and disadvantages as mentioned above and the company should use it based on its requirements.

ekkarill92 answered 2 years ago

- Activity-Based Costing Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring...

- Activity-Based Costing Define activity-based costing (ABC) systems. What benefits does implementing an ABC system bring to the company? Explain at least two benefits. What are the disadvantages to implementing an ABC system? List and explain at least two. Would the proposed changes make ABC a universally applicable costing method in your opinion? Why or why not? Elaborate your response. No plagiarised answer, please.

ABC Company uses a traditional costing system. Management is considering switching to an activity-based costing system....

ABC Company uses a traditional costing system. Management is considering switching to an activity-based costing system. What steps must Star take in initiating an activity-based costing system? Need unique answer

Analyze the advantages and disadvantages of implementing a traditional Activity-Based Costing (ABC). Provide a rationale for...

Analyze the advantages and disadvantages of implementing a traditional Activity-Based Costing (ABC). Provide a rationale for your response, including a discussion of how a company would benefit from analyzing costs using an ABC system. Suggest the way a business can achieve a competitive advantage in the marketplace through the use of ABC. Provide two (2) reasons to convince senior management that they should implement an ABC system.

For this discussion: Analyze the advantages and disadvantages of implementing a traditional Activity-Based Costing (ABC). Provide...

For this discussion: Analyze the advantages and disadvantages of implementing a traditional Activity-Based Costing (ABC). Provide a rationale for your response, including a discussion of how a company would benefit from analyzing costs using an ABC system. Suggest the way a business can achieve a competitive advantage in the marketplace through the use of ABC. Provide two (2) reasons to convince senior management that they should implement an ABC system.

Activity-based costing (ABC) Marconi is a Portuguese telecommunications company that encountered problems with its ABC system....

Activity-based costing (ABC) Marconi is a Portuguese telecommunications company that encountered problems with its ABC system. The company’s production managers felt that 23% of the costs included in the system were common costs that should not be allocated to products and that allocating these costs to products was not only inaccurate, but also irrelevant to their operational cost reduction efforts. Concerns over the application of the ABC approach at Marconi have been raised by personnel, including some of the senior...

What is a job-order costing system? What do you know about Activity-Based-Costing (ABC) system? What are...

What is a job-order costing system? What do you know about Activity-Based-Costing (ABC) system? What are the differences between an ABC system and a traditional costing system? Use an example to show how we calculate and allocate overhead costs in an ABC system and a traditional system.

You are part of a team responsible for implementing an activity-based costing system. Some of the...

You are part of a team responsible for implementing an activity-based costing system. Some of the members do not understand the steps involved in implementing such a system. Prepare a summary showing your team members the steps involved and a brief description of each step that are completed in the process.

Rapp Company is considering switching to an activity-based costing (ABC) system. The company produces and sells...

Rapp Company is considering switching to an activity-based costing (ABC) system. The company produces and sells two products: LoEnd and HiEnd. The company consists of two departments: Production (where the products are made) and Marketing (which engages in selling and admin activity). The company's traditional costing system computes unit product costs as dictated by GAAP; direct labor hours (DLHs) are used as the allocation base for manufacturing overhead cost (the overhead rate is rounded to the nearest cent). The ABC...

What does an activity based costing system outline look like pretaining to a company funtion in...

What does an activity based costing system outline look like pretaining to a company funtion in a restaurant?

As you might imagine the ABC Tank Manufacturing Company uses an activity-based costing system. ABC has...

As you might imagine the ABC Tank Manufacturing Company uses an activity-based costing system. ABC has given you the following data that is used in its activity-based costing system: Overhead Costs Wages and salaries $ 348,000 Other overhead costs 193,000 Total overhead costs $ 541,000 Activity Cost Pool Activity Measure Total Activity Direct labor support Number of direct labor-hours 10,500 DLHs Order processing Number of orders 480 orders Customer support Number of customers 105 customers Other This is an organization-sustaining...

Question