Question

ACCT 2210 Spring 2020 Project Part 4: Chapter 4 Memo Writing Nowadays, more and more machines are used in the production, the use of direct labor has decreased, and depreciation has increased. Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process. Assume that your client company uses job costing; you, as a consultant, are writing a memorandum to your client company and recommending ABC. In this writing assignment, please describe the reasons and benefits of changing to ABC. Requirement: Please submit a WORD document (more than 500 words less than 800 words) on the blackboard by Feb 26th, 2020. Please use standard 1-inch margin at each side of the letter size paper and Times New Roman at Font 12. This document should be in a memorandum format (please feel free to start a template that you can find online).

Answer 1

As a consultant seeing the benefits and changing trends I would definitely recommend activity based costing.

The current company is using job costing which is little Disadvantageous as their are so many little jobs executed which cannot be counted in job costing . Additionally price is fixed on the basis of market records so job is expensive also the benefit of activity based costing is more advantageous.

Activity Based Costing is a method which includes recognising of costs with each cost driving activities and making it basis for absorption of cost their are certain overhead cost which cannot be attributed directly.

It assigns costs on the basis of consumption done by the company it Assign cost to the end product to the cost units on the basis of benefits received.Their are various advantages of activity based costing for which company should use such types of costing.

• It accurately estimates product cost --Activity based costing focuses on the activities that causes the cost not the product so the correct estimation can be made about the product.Example
• Accurate Idea about the cost behaviour- if cost are ascertained on the basis of activities that idea about which activity is costing more can be gained and control can be emphasized upon for example
• Correct tracing of activities under cost driver-Cost driver is the causes of incurrence of such change, so cost drivers can be correctly identified which which make the work easy.for example-cinema purchase orders, material receipts, kilometres driven all things can
• Cost management- ABC can help in better cost management because correct idea about what is the cost drivers,cost centre can help in managing the correct Allocation and absorption of cosr.
• Better decision making - things can go better if correct accuration of each data can be made which will further boost the decision making so this system of activity based costing is better.

Their are certain disadvantages of activity based costing also that is little bit expensive ,ascertaining the cost drivers can be a difficult job but the pros of activity based costing overlaps the cons so my advice would be for opting the activity based costing which can help the companies in the good direction to reduce the cost