Question

What process is used estimate revenues and costs of alternative actions availavbe to decision makers? And how does two-stage Activity-Based costing (ABC) assign costs?

Answer 1

process of decision makers acording revenue and cost

1) pricing decision

acording to our expences that is fixed and revenue calculate, and the other side calculate the revenue..

comparison of revenue and expences to find out the price of product.

2) accepts or reject special order

if we are accepted the order and thats fixed expences are incresed so we are rejected the order

and we use maximum resources for the maximum utilised as well as maximum profit we get..

3) adding aur eleminatiing

our demand are more and more than we decide the new department are add or when demand are decreased than we decides the department are eliminating

4) sell or process further

we are selling the product at our estimation of revenue and cost.. if we are geting profit. other wise we are going for further process.

5) make or buy

we are decided the products are make in our department or we directly purchased from the market and sell. this decision also acording to our calculation of revenue and cost.

** two stage of allocaton in activity based costing

in the ABC process we allocate the expenses acording to different different factor.

Stage 1: Allocation to Activities

The first step in Activity-Based Costing is to divide the expenses of certain overhead activities to a per-event cost. For example, say that the overall cost of resetting a machine for production during the year was 100000. You have three products and you had to switch the machine over 100 times. The first stage of allocation would stipulate that the cost of one setting switch is 1000.

Stage 2: Allocation to Production

The second step in activity-based costing is to allocate the activity cost to each product. Using the same example, a uniform batch of each product would be produced after every switch. So after every switch, 1,00 units of Product A or 1000 units of Product B would be produced. The “switching cost” allocated to a single item of Product A would be 10, while the switching cost for a single item of Product B would be 1.