Question

In Activity-Based Costing,

1. Briefly discuss the features of your chosen costing system.
2. Identify 2 specific Australian organisations that your chosen costing system is suitable to, and explain why.
3. Discuss the potential uses of the cost information for decision-making, to the managers in each of the 2
organisations selected in Q2 above.

(Make it Detailed)

Answer 1

Answer:

1. The chosen system is the ABC system.

Features:

Activity-based costing produces a more accurate or certain method of service or product costing, leading or heading to more accurate or certain pricing decisions. It enhances understanding of cost drivers and overheads; and also makes expensive and non-value scoring activities more visible or noticeable, allowing managers to eliminate or decrease them.

2. The chosen companies are RMS and ALS Limited.

Reason for suitability in choosing ABC:

The fundamental undertaking of the approach is to give solid and reliable data from several territories, for example, deals or creation, based upon, client gatherings, item gatherings, or provider gatherings.

3. Managers of both the Companies use ABC costing information in decision making for improved information, higher reliance on decision-making, improvements in communications, more reliable, useful, understandable information, and greater efficiency.

Step-by-step explanation

1. Activity-based costing or ABC system: It refers to a costing method or system that assigns or allocates indirect and overhead costs to related services or products.

Features of ABC:

a. It is a 2 stage product costing system or method that 1st assigns or allocates costs to activities and after that allocates or assigns them to the products basis on every product's consumption of activities.

b. Cost pools in a 2-stage approach now accumulate the activity-related costs

c. Activity refers to any discrete task which an entity undertakes to deliver or make a product

d. ABC is based upon the concept or idea that the goods or products consume activities, as well as activities, consume resources

e. It could be utilized by any organization which requires a better or comprehensive understanding of the services and goods' cost it provides or produces, including services, manufacturing, and even NPO.

2. The two selected companies are:

a. RMS manufacturing

b. ALS limited

The reason for suitability is as follows:

Both the chosen companies are manufacturing companies and ABC costing system helps them multi-dimensionally.

In today's business, the firm's executives happen in an evolving and dynamic condition and need broad aptitude. It indicates we require to search for current or recent instruments that would assist us with achieving ever better outcomes. It is hard to expect better results if we do not focus on cost examination.

RMS manufacturing:

It is a progressive as well as collaborative Engineering and Switchboard (i.e. Electrical) Manufacturing company which is located in Melbourne, Australia.

At the time when complex or hard assembling forms make or get cost bookkeeping required or lacking as the data's wellspring for dynamic purposes, this is the smart thought to choose activity-based costing. The idea or approach is something other than calculating a unit cost.

ALS Limited:

It is a manufacturing firm headquartered in Brisbane, Australia. It provides inspection, testing, verification, and certification services across 65 countries.

The fundamental undertaking of the approach is to give solid and reliable data from several territories, for example, deals or creation based upon, client gatherings, item gatherings, as well as provider gatherings, etc.

Activity-Based Costing strategy backhanded or indirect expenses or costs are doled out to articles or items using a broad range of the cost drivers. Roundabout expenses or costs are described simply in customary variable cost and full-cost bookkeeping because they are generally doled out to articles or items based upon bookkeeping reports or records. This strategy or method is the key or core instrument of effective and powerful dynamics.

3. Activity-Based Costing: It is a tool to support decision making

It is created to give managers proper cost information for the decisions and strategies that potentially affect the ability and therefore FC or fixed costs activities normally serve as the basis for allocating costs.

Activities normally serve or work as a basis for allocating costs.

The uses of cost information for decision making is as follows:

In RMS, managers use ABC costing information in decision-making for accurate product costing, improvements in profitability, timely information, and improvements in the working environment and the physical operations.

These mentioned factors help the managers in decision-making.

In ALS, managers use ABC costing information for improved information, higher reliance on decision-making, improvements in communications, more reliable, useful, understandable information, and greater efficiency.