Question

Read the following scenario below:

Leighton Beridon owns "Jeemp Farms", located near Weimar, TX. The farm produces pecan trees and sod. He has so many orders from the Houston metropolitan area that he is able to sell all his inventory each year, but he is not netting as much as he has in past years. His daughter, Liesl Beridon, came home from college over Thanksgiving and mentioned ABC costing, which she learned about in her cost accounting class. Mr. Beridon does not really know what ABC costing is and is skeptical as to whether it would be right for his business. He has hired your company to educate him about ABC and whether or not he should use an ABC system. Over the next few weeks, you will work towards helping Mr. Beridon decide what is the best route for his company to take.

Shortly after you get started, Mr. Beridon sends you an email stating that he feels he needs to discontinue the sod portion of his business and focus on his tree sector, as he can charge more per tree than he can charge for a foot of sod. He sends you an email stating, "I can charge so much more for a tree than a foot of grass. Therefore, I am planning on discontinuing the sod portion of the business immediately as I make so much more on the trees! I am going to plant all my sod acres with trees".

Questions:

• Project potential benefits Mr. Beridon could gain from using an ABC system.
• Describe any factors that could skew your results. In other words, explain if there is one method of costing that could make a product look more favorable than it really is
• Explain ABC costing and how it is different than traditional costing.
• Explain the advantages/disadvantages of using ABC costing.

Answer 1