Question

Q1 Give example of company using ABC costing and explain the process used in this company to assign costs in an ABC system?

Answer:

      Q 2 Give examples of questions managers could ask to help them identify relevant qualitative factors that will be used before making decision?

Answer:

      Q 3 Kadhim Co. manufactures product B which is a part of its main product. Kadhim Co makes 50,000 units of product B per year. The production costs are detailed below. An outside supplier has offered to supply 50,000 units of product B per year at $ 2.45 each. Fixed production cost of $ 40,000 associated with the product B are unavoidable. Should Kadhim Co make or buy the product B?

The production cost per unit for manufacturing a unit of product B are:

Direct Materials	0.85
Direct Labor	0.65
Variable Manufacturing Overhead	0.40

Answer 1

ABC costing and explain the process used in this company to assign costs in an ABC system

Answer 1

The (ABC) system is a method of accounting to find the total cost of activities required to make a product. The ABC system assign costs to each activity that goes into production, such as workers testing a product.

Activity-based costing steps

• Identify which activities be required to create a product.
• Divide each activity into its own cost pool, which is a group of individual costs associated with an activity. Determine the total overhead of each cost pool.
• Allocate activity cost drivers to each cost pool. Cost drivers are things (e.g., units, hours, parts, etc.) that control the changes in costs.
• Separate the total above your head in each cost pool by the total cost drivers to get cost driver rate.
• Compute how many hours, parts, units, etc. that the activity used and multiply it by the cost driver rate.  

1. example,As an activity-based costing consider Company ABC that has a $50,000 per year electricity bill. The number of labor hours has a direct impact on the electric bill. For the year, there were 2,500 labor hours worked, which in this example is the cost driver. Calculating the cost driver rate is done by dividing the $50,000 a year electric bill by the 2,500 hours, yielding a cost driver rate of $20. For Product XYZ, the company uses electricity for 10 hours. The overhead costs for the product are $200, or $20 times 10.

Answer 2

In cost accounting, decisions based in part on qualitative factors are relevant. Qualitative factors should always be considered before making any business decisions. The qualitative factors that has the biggest impact on business may be

1) Employee morale, schedules and other internal elements.

2) Relationships with and commitments to suppliers

3) Effect on present and future customers

4) and long-tern future effect on profitability. In some decision-making situations, qualitative aspects are more important than immediate financial benefit from a decision.

A manager should consider qualitative factors as part of his or her analysis of a decision. Depending on the manager and the level of investor involved, qualitative factors can be deciding point in whether to connect in a certain activity

Answer3

Khadim Co. manufactures product B which is a part of its main product.

Statement Showing make or buy decision
	Make	Buy
Direct Material (50000X 0.85)	$42,500
Direct labor (50000X 0.65)	$32,500
Variable manufacturing Overhead (50000X 0.40)	$20,000
Fixed cost buying from Suppliers (50000X$2.45)		$1,22,500
Total Cost	$95,000	$1,22,500
Net Saving in Make instead of Buy	$27,500
* Fixed Cost is Sunk cost which is irrelevant hence not consider in analysis

Therefore, it's not compulsory to make the [product in-house despite of buy from outside Supplier.