Question

“Differentiate Between Value-Added and Non-Value-Added activities?
What are two advantages and two criticisms of activity-based costing?
Comment, Why ABC and ABM is Necessary in Manufacturing Entity?
Explain Few Reasons.”

Answer 1

Value Added and Non Value Added Activities :-

The Main Difference between the Value Added and Non Value added activities is that a value added cost is money spent which will increase the customers perception of the value of the product or may be the service...

The value added Activities Benefits the business very much but Some Non Value added Activity expenses are also needed at times...

Attract the customer by increasing the value of what you have , may be the product or the service...

Ultimately More customers means more revenue..

and the Non Value Added activities or the cost is the cotrast to the Value added one which may not attract the customers or change the customers perception..

Non value added costs does not offer the benefits as the Value added ones do.

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Advantages of the Activity Based Costing :-

1) It Helps to reduce the costs

2) ABC mainly works only on activities and management can make decisions quicky by knowing the nature of the Activity ajy time

3) These activities can be classified into two.. One is Value added and Another one is Non value added , therefore it helps the management in focusing much on Balue added activities and Avoiding some Non value added activities...

Disadvantages :-

1) It is not much useful to the Small Business..

2) Some companies may produce only one product and it may not be applied to those companies .

3) ABC cannot be used to prepare Monthly Profit Statements.

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ABC and ABM is Necessary in Manufacturing Entity Because ,

1) It helps in better tracing of the costs to the Objects , allocation of overheads to cost.

2) Helps in Financial and Non Financial measures to the Management

3) Both ABC and ABM helps the management in managing operational acticiacti and to improve the performance of the Business entity.