Essays on Activity Based Costing

Report on Sierra Ltd.

Report on Sierra Ltd.

Introduction

This report will assess the dip in profit of the Sierra Ltd. and will closely monitor the current costing and pricing strategies. It will also assess whether the activity based costing is suitable for the company or not. On further, if activity based costing is implemented, the steps that should be taken by the management to ensure the implementation will also be analyzed. Mr. Kaur’s suggestions will be deeply assessed to ensure if going along his way is safe and profitable. The important concerns of the Sierra Ltd. are due to the refinancing to ...

Introduction

Sierra Ltd. is an automotive parts’ manufacturer situated in Eastbourne, England. The company manufacturers several distinct products and follows the traditional cost management system. It uses machine hours as the basis of allocation of overheads to its product costs. This report provides an assessment of Sierra’s finance director’s proposal to adopt the Activity Based Costing system for allocating overhead costs more appropriately and to increase sales margins. The most important issues faced by Sierra Ltd. are the declining revenue and profits since the last five years, low projected net profits for 2016 and high product costs. Sierra ...

1.0 Chapter 1 Introduction 1.1 Background and Rationale of the Research The industry of construction is not only a key player in the national economic growth; but also a crucial sector affecting the economic and social welfare of citizenry, particularly in its primary function in providing reliable and decent shelter. It is viewed as one of the most essential sector to highly contribute to the growth of an entire economy at the provincial, national and international levels (Artto & Kujala, 2008). In the recent years, cost modelling and estimation for construction projects have attracted major attention of several research scholars. ...

Introduction

As the business world of today is highly influenced and driven by globalization pressures, it is imperative that organizations should manage their financial and non-financial resources efficiently and effectively for gaining competitive edge in their respective marketplaces. Equally important is that organizations, particularly manufacturing businesses, should consume their resources and activities wisely so that the costs should be controlled and revenue could be generated. Therefore, the primary focus of this research is to make an important discussion about Activity-Based Costing (ABC) considering different dimensions. Not only is the concept of Activity-Based Costing (ABC) illustrated based on literature review (gained ...

Introduction

Supply chain efficiency measurement plays an imperative role in enabling organizations take corrective efforts in case of persistent issues in the supply chain. The measurement techniques look for ways through which suppliers, stores personnel, manufactures and marketers could come together to improve ways through which quality products are produced and supplied to the right customers, at the right time and the preferred locations. The supply chain framework includes significant processes such as how to plan, source for the raw materials, produce and then deliver to the targeted customers. This implies that it is only through effective management of the ...

The cost which the organization incurs the production and acquisition of products and services which it intends to sell is very important. The pricing strategy of the organization is significantly affected by costs. Therefore, costs designed to tackle the challenges of the economic and the noneconomic factors very efficiently. The objective of the costing models is to categorize the factors of the marketing objectives of the company and the mission of the company (Gitman, 2003).

Accurately determination of cost is important in organization to remain profitable. Costing does not only require including direct and indirect cost associated with business ...

Being different from the tradition costing techniques, ABC costing requires a rigorous fact finding mission regarding the operations of the company. The below are the main steps in ensuring a fully operational and effective ABC. 1. Identification and classification of activities that are related to the company’s products. The area under scrutiny will be every bit of the value chain, for example production, product design. Marketing, and distribution. A summary of all activities that sum up the production as well as selling of the produce is prepared. To ensure accuracy in the information gathered, processes like interviewing ...

PART-1

Activity Based Costing: Activity Based Costing is one of the most widely used inventory classification models otherwise known as “Always Better Control”. As per ABC categorization, things are categorized on the basis of their consumption value in a year. It recognizes the activities and distributes the cost associated with each resources and activity on the basis of the actual consumption by the products and services. Thus, ABC is a technique to quantitatively measure the performance and cost related to the activities, resources and cost objects. ABC incarcerates organizational cost for the different factors of production and other administrative expenses, and ...

(Financial) Management Accounting Case Study Every single organization of the world is now trying to flourish their growth comparatively better than that of their competitors (Bradtke, p.45). The thing that really matters for them to have the same comparative growth potential is the management of operational cost. Operational Cost, though a common thing for an organization, but emerged as a real gangrene if the proportion of the same would be on a higher node (Cokins, p.34). Cost-Volume Benefits always bring positivity in the functions of the company, as it has the ability to manage the operational cost in such a manner ...

Life Cycle Costing

Life Cycle Costing The life cycle costing method accumulates all the costs associated with the production of the specific product from the beginning to the end of the production. The life cycle costing method tells and assists to the management of the business in making the price of the product more competitive as compared to the competitors in the market. The life cycle costing method accumulates and tracks all the costs to be incurred in the production of the new project before decision making. The life of any product is divided into five stages according to the life ...

Halogen Bulbs - Cellulose Insulation - Aluminum Ladders - Bamboo Fly Rods

Decision making is an important element that associated with an organization for their betterment and long run efficacy. There are basically two broad types of organizations are there known as manufacturing organizations and service oriented organizations, and both of the types of companies are delivering something extra and something new for their end users. In this part of the assignment, it is required to analyze the production system for the Halogen Bulbs, Aluminum Ladders, Cellulose Insulation and Bamboo Fly Roads. Apart from that, it is also required to analyze the most effective cost method that would be effective for ...

Dear John,

Please find the below report analyzing different costing techniques and how they can be effective to your company. It is my sincere hope that the contents of this paper will be useful to Mahir International now and in future.

Intern, Mahir international.

Executive Summary.3

Introduction 3 & 4 Part A: Calculations (in excel) 7 -12 Part B: Analytical Discussions 4 - 7 Recommendations 6.

References12

. Executive Summary Mahir industrial works with giving unique design for valves and stands at a better position than any other industry. There is loyal customer base that is a result of high-quality valves. ...

This report comprehensively discusses the significance of keeping financial records and how financial information available in the financial statements of an entity help wide range of stakeholders in assessing company’s performance to make viable economic decisions. Moreover, as follows the report also defines the budgetary control process and different costing methods and their effects on short term and long term performance of the business. I would also like to discuss the statutory requirements of recording and reporting financial information for entities operating in the United Kingdom. There are several reasons for companies to retain their financial records. ...

Moreover, the application of activity based costing takes into account activity centers. Activity centers are units within a firm that perform an activity. As such, the number of production runs can be attributed to the manufacturing process while the selling and administrative costs can be attributed to the number of sale agents employed by a firm. As such, if an activity takes 30% of time available in the manufacturing, we can assume that it accounts for 30% of the total production costs. On the other hand, if a product requires 45% of the total sales representatives in the firm, we can assume ...

Allocating Fixed Costs

Allocating Fixed Costs Activity Based Costing (ABC) is different from the other traditional costing methods. The traditional costing methods, such as marginal and absorption costing methods, has only two absorption basis. These two absorption basis for the allocation of overheads are labor hours and/or machine hours. However, in Activity Based Costing, every cost unit has a separate cost driver to allocate the overheads more effectively and efficiently. The activity based costing is a more refined method of allocating the overhead costs and separate the loss making products from the profit making products. Therefore, as compared to the traditional costing methods, ...

Introduction

When it comes to organizations, then there are two important things which are more than essential for them, which particularly are cost and revenues and both of these provisions are quite important for the sake of an organization. Organization basically refers to a place wherein people belong to different demographics and mindset work together merely for the achievement of a single and pre-specified goal in particular There are certain things which are more than essential for a company to manage their operations and financial structure. Among these provisions, the name of costing is one of them, which has its own significance ...

Introduction . 3

Overview of Company. 5 Activity Based Costing 6 Standard Costing .. 9

Future Projects . 10

Summary and Conclusion 11 Reference .. 13 Introduction It has always been the objective of the firm to encourage cost minimization as possible so as to enjoy the benefits of increased profitability which is the ultimate goal of many organizations. However, it is also prudent to note that these organizations would be required to make a choice of the most efficient costing methods to be adopted in the organizations business operations. Hence, the study shall undertake an in depth research so as to ...

MANAGEMENT ACCOUNTING QUESTIONS

Question 1 The entity charged with the design and development of the activity based costing system is the company’s a person who possess a host of leadership abilities and prior knowledge of ABC technology most probably a person from the company’s accounting department . This individual would be charged with the role of coming up with the most effective costing system that can significantly boost the company’s drive towards the achievement of its objectives. The person selected should however have the maximum to have the support of the top managers, line managers and the entire staff of the company. ...

Company researched, Apple Inc.

Apple Inc. is a multinational company that deals with manufacture and distribution of consumer electronics, both hardware and software products. The hardware products personal computers, iPod music player, iPhone smartphone, andiPad tablet computer, while the software products include the OS X and the IOS operating systems, the iTunes media browser and the safari web browser. Apple Inc. was incorporated as Apple computer Inc. on January 3 1977. However the word computer was removed from its name on January 9 2007, on the eve of that day Steve Jobs introduced the iPhone reflecting its focus in consumer electronics. Current statistics indicate ...

Allocating Fixed costs

Fixed can be described as those costs the form or organization incurs whether or not it is producing any goods or services in the current period. In simple terms, costs that do not decrease or increase with change in production. They are only affected by structural changes or changes in the rate of inflation (BPP, 2013). Fixed costs are only variable in the long run but constant in the short run hence their name fixed costs. Allocation of cost can be said as the process of aggregating, identifying costs and allocating cost to cost entities. Hence, allocation of fixed ...

Activity-based costing focuses on the activities on specific items and not the products of a given firm. In addition, activity-based costing effectively identifies specific activities within a firm whilst assigning the associated costs on the basis of the levels of consumption. Notably, activity-based costing is different from conventional costing on the basis that the former categorizes overheads as direct costs. Theoretically, Competition Bikers merger should not adopt activity based costing as a replacement of the conventional accounting system but as a complimentary or additional accounting system. This will help to transform the company’s accounting process into an authentic state. There may ...

This Business plan is designed to setup fashion garments manufacturing and retail business in the city of Milan, Italy. The target market would be people within the age bracket of 13-49 and fashion conscious customers. The unique selling point will be attractive designs, quality, embroidery, fabric and sizes. The company will open two retail outlets in the city and arrange agreements with three leading departmental stores for the purpose of sale (Businessoffashions, 2007). The designs, fabric and quality will clearly differentiate our product from its competitors. To adequately cater to the needs of the customers, the market is ...

Activity-based costing focuses on the activities on specific items and not the products of a given firm. In addition, activity-based costing effectively identifies specific activities within a firm whilst assigning the associated costs on the basis of the levels of consumption. Notably, activity-based costing is different from conventional costing on the basis that the former categorizes overheads as direct costs. Theoretically, Competition Bikers merger should not adopt activity based costing as a replacement of the conventional accounting system but as a complimentary or additional accounting system. This will help to transform the company’s accounting process into an authentic state. There may ...

- Scott Cook and Tom Proulx collected what is known as Primary Data. According to Professor Hossain from the website Spirkle Express Documents (2012), primary data, or raw data, is data that is collected through the process of investigation. Primary data is unfiltered and pertains directly to the field under investigation. In the course of their investigation, Scott and Tom became intimately aware of what their customers needed based on what is actually useful to them. Instead of creating a product that created a need, Scott and Tom created something that already is needed, that being personal finance management. I believe ...

Costs influence the pricing decisions of any company as it aims to make a profit out of its production activities. The healthcare industry is volatile and competitive and the pricing set in the market will not be suitable for a company that does not strategically control its costs. The management of an outpatient health clinic felt the need to shift from a traditional accounting system to a modern cost accounting system known as activity based costing (ABC).

ABC in an Out-Patient Health Clinic

In traditional system of accounting, the good or service would be assigned direct and indirect costs. The fixed costs would be estimated for the different products ...

Apple Inc.

Apple Inc. is a manufacturing concern in the electronic industry. Apple Inc has its headquarters in the United States of America. It produces a range of electronic products ranging from hardware products like the Mac personal computers, iPads, iPods and iPhones. Its software products in the market include the following: the OS X and the iOS operating systems and iTunes music browser, iWork and iLife creativity suites. The company operations span the entire globe. Apple Inc. had three hundred and sixty four retail outlets as at July 2011. In addition, Apple Inc. runs a successful online retail services that operate in the entire ...

Lille Tissage S.A.

One of the largest companies in the French textile industry is Lille Tissages, S.A. It is located in Lille, France. It produces different textiles and produces item 345 using equipment that cannot be used for any other item. In 2002, the company decided to raise prices to finance future expansion. LT is a profitable and financially healthy company and management believes that it could make the necessary changes in terms of price to affect its long-term goals.

LT enjoyed a 35% market share from 1998 to 2001. In 2002, its market share dropped to 30% and in 2003 it dropped to ...

Activity Based Costing

When a business runs smoothly it impressed the manager in-charge. For them to achieve the smooth running of their businesses, they have to put several factors that involve management from the production of the goods and services that their companies offer. This, therefore, leads to an introduction of one of such aspects: Activity Based Costing (ABC) analysis. This is a concept that is applicable in the business field in order to improve its competence and productivity. In these, ABC helps in the creation of budgets as well as setting prices of commodities. In addition, upon establishment of ABC, there is the ...

Introduction

Midwest Office Products (MOP) is a regional distributor of office supplies and to institutions and commercial business organizations. MOP is known for its excellent customer service and responsiveness. MOP Management is concerned because the company just experienced its first loss in history, despite increased sales from the prior year. The company looked at its costs and the activities relevant to its business. The task is to develop a cost accounting system that will accurately reflect the relevant costs of MOP per order with respect to the number and types of activities, processes or transactions that transpire.

Answers to Questions

The first table shows an ...

General explanation of the procedure followed

Contribution refers to the excess the unit selling price of a product over the direct costs of production related with the production of the said product. This accounting procedure is based on the assumption that fixed costs are incurred on timely basis (fixed costs are fixed for a certain duration of time) Hence, the fixed costs are considered irrelevant in decision making regarding the production of the said product. Contribution per unit is thus defined as ‘the revenue generated to cover certain fixed costs, as well as cater for the profit margin of the trader. It is prudent for a manufacturer ...

Abstract

The recent years have witnessed the evolution of the accounting discipline from simple accounting techniques to the present advanced accounting systems which have simplified accounting while at the same time increased efficiency in handling huge volumes of accounting information. Cost accounting, and in particular cost allocation systems have evolved tremendously over the past few decades, from the traditional costing methods to the most preferred cost allocation method, activity based costing. This paper explores the emergence of ABC system, while comparing traditional costing systems with ABC. The benefits of using ABC system, its evaluation and implementation will be explored. Activity ...

In CVP analysis profit is calculated by subtracting total costs which are both fixed costs and variable costs from total revenue which is gotten from total sales. In our current case the total revenue from Video game sales amount to $25000000. The cost of advertising which can be assumed to be the fixed cost amounted to $6000000; the variable costs amounted to $5000000 while the production costs were $14000000 taking the total costs to 25000000. This cost is equal to the total cost hence the firm makes no profit. Where the sales are equal to the cost of production ...

Introduction

The accountant involved in management accounting requires more information than the traditional accountant. Previously in traditional accounting costs used to be allocated to the product based on the volume output. Companies have realised that they need more detailed and analytical accounting information in order to judge their performance over time well.

Management Accounting

In job costing, the management accountant is interested in the costs of the different “jobs” that have been conducted throughout the production cycle of a good. Management accounting goes into specifics in order to provide management with information on which job is causing the production costs to be high. ...

Introduction

Management accounting can assist managers in an organization make timely and purposeful management decisions about the organization. Different organizations have different managerial accounting needs depending on their most essential area of business. Generally, management accounting deals with providing accounts and management reports to managers within the organization (Khan & Jain 2007). The information provided is crucial in assisting managers make informed decisions for control and management purposes. In contrast to financial accounting, which provides annual reports to external parties such as investors, creditors, shareholders and others, management accounting provides periodical reports (Coombs, Hobbs, and Jenkins 2005). These reports are important ...

Modern accounting systems

Introduction

Developments in Information and communication technologies have lead to the development of numerous accounting software. These accounting software have facilitated development of modern accounting systems. Examples of accounting packages are; QuickBooks, Sage, Cashcall, Mind Your Own Business (MYOB) and Enterprise Resource Planning (ERP), [ CITATION Ree05 \l 1033 ].Modern accounting systems have revolutionized the way accounting is done and had a great impact on businesses. This paper discusses the impact of modern accounting systems on organizations.

Improvement in financial reporting

Many organizations obtain funds from various sources. The various providers of funds have different information needs therefore financial reports need to be structured to ...

Introduction

Massachusetts Eye and Ear Infirmary (MEEI) is a non- profit organization which for the past decades has had problems in its evaluation on the way the cost are being evaluated and appropriated to patients. The system that was being employed in the hospital was insinuated to be ineffective in the sense that it did not put into consideration all the necessary measures that are required before allocating costs. According to the executive director, Mr. Charles wood, there is a need to change the traditional method used in evaluating the costs and instead embrace the new method. Central to his thoughts, the ...

Is Activity-Based Costing (ABC) superior to traditional costing in which only one overhead pool?

Traditional costing in which only single overhead pool is used is inferior to Activity-Based Costing since it can not be used to make effective running decisions which can be relied by a firm. This is because it was well designed for firms which had single production and huge costs as compared to indirect outlay of ABC (Holmen, 1995). Also, it provides limited information to aid in running control of prices at merchandise level or less. ABC is best suited to oblique costs than the latter and offers no alterations the way the material and labor accredited to processed goods. This ...

Integration of ABM and ABC in Dow Chemicals Limited

The Dow chemical, an international chemical company, applied activity based costing in order to enable the global business to report the contribution margins according to the geographical area, specific products and customers. The management believed that the system would assist in better decision making in the use and the deployment of its resources. In the traditional accounting system, the costs were assigned to areas such as sales and purchases. However the method was inappropriate as it resulted to fluctuating cash flows since the main focus of costs was on prime costs. It did not provide the manager with accurate ...