Question

without plagiarism please ..

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

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

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

Amswer-

1) Activity based costing is the method of costing in which the related overhead cost is divided based on their consumption.

In the process of ABC,the company applying it must identify the cost drivers and then find the rate of alloacation based on total of each driver and finally these are allocated to the product based on activity used by each product.

This method of costing usually assumed good as it takes the source of costing in order to allocate the related cost.

2) Decision making-

Under decision making costs are categourised under three segment one is variable cost and another is avoidable fixed cost and last is unavoidable fixed cost.Under this,the unavoidable cost is treated as sunk cost as in decision making this cost is not likely to be changed.One of the cost is past cost,which may be variable or fixed sometime , it is also not considered for decision making because,this cost has already been incurred with no substantial effect for particular contract or special order.

Only variable cost and avoidable fixed costs are considered, sometimes specifically required cost for any project or special order are also considered.Hence in decision making will run around above mentioned points.

3) No, Kadhim should not buy the product from outsider as the variable cost ($1.90) of production is less than price offered ($2.45) by outsider.

In the make or buy decision making only variable cost and avoidable fixed costs are considered thw present fixed cost of $40,000 is unavoidable,which means it would continue to incur whether to produce the product in house or procure the product from outsider.Since this cost is sunk for decision making only variable cost must be compared with purchase price.

In all of above process the variable cost of production is less than the cost to buy.Hence the product should be manufactured in house only.

Thats it,

Please comment for any explanation,

Thanks