Question

Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs.

Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below are a sample of possible cost pools for Waterways.

Assembling		Payroll
Billing		Plant supervision
Digging trenches		Product design
Janitorial		Purchasing materials
Machine maintenance		Selling
Machine setups		Testing
Molding		Welding
Packaging

For each of the above cost pools, what would be the likely activity cost driver?

The results of ABC can provide a more accurate picture of costs. Discuss the value of Waterways using this system to determine overhead costs.

How might using ABC affect decision making at Waterways?

Answer 1

#The results of ABC can provide more accurate picture of costs. Discuss the value of Waterways using this system to determine overhead costs:

*Waterways will profit the accompanying by actualizing ABC Costing.

*Expenses are allotted all the more legitimately dependent on cost factors delivered or utilized by every item.

*It permits to have an incredible authority over overhead expenses. Overhead can be followed legitimately to the exercises.

*This will helps in taking better administration choices. cost information assists with concluding whether to purchase or make an aspect of the part or item or taking out the item.

#How might you use ABC affect decisson making at Waterways?

Movement based costing is significant device for overseeing decisson – making. ABC gives organized monetary information that is diverse path from the bookkeeping information gave in the overall record. A reasonable relationship will be set up between the related expenses and movement request by partner the expense for the action. The affiliation will helps the wholesaler of the item to figure out where expenses have been brought about and endeavors to be applied to control inflationary expenses.