Abc Costing System

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based

Activity-based costing is a system of accounting that puts emphases on activities performed to produce products or services (Schneider, 2012). In this costing system every activity is assigned a cost (Schneider, 2012). The goal of activity-based costing is not to allot common costs to products but to measure and then price out all the resources used for activities that sustain the production and delivery of products and services to customers (Mazumder, 2007). Activity-based costing is a cost system that is useful in business because of the fact that it does account for the cost of the products, resources used to produce the product and delivery of the product.

Using ABC also allows the company to use the Just in Time (JIT) system. This system allows ensures materials are purchased just in time to produce the products, and products are completed just in time for delivery. JIT uses the demand-pull system to receive the order, schedule production, delivered materials, and finished product delivered to the customer. This lessens the amount of excess parts and inventory saving the company money as well.

Glaser Health Products manufactures medical items for the health care industry. Production involves machining, assembly and painting. Finished units are then packed and shipped. The financial controller is interested to introduce an activity-based costing (ABC) system to allocate (or distribute) indirect costs to products. Indirect costs, as distinct from direct costs, cannot be unambiguously linked to specific products. The controller would like to calculate product costs based on ABC for planning and control, not inventory valuation.

The first item at hand is what kind of detail does activity based costing provide that is different than traditional costing?

4) Exploring the possibility of implementing JIT (Just in Time) system that can reduce the finished goods inventory at

This paper provides a brief presentation of Activity-Based Costing methodology, how is used as well as its short comings.

3. Theoretical Approach: State which theory you might use withe the client and provide your rationale.

I had every intention of utilizing a JIT approach. In fact, that was the reason I put off increasing my capacity for so long. I figured it was likely that I would continue to enhance my products and change my strategies in the beginning. I also thought that my products would not be highly demanded in the beginning. It worked well for me in the first two quarters. It wasn’t until the second half

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

We will examine the given data from the case and compare the unit costs from the company’s current costing system (traditional costing) and from activity-based costing. We will also highlight other qualitative data in consideration with the numerical factors that may result to a significant change on our recommendation.

3. Ruhl, Jack M; "The theory of constraints within a cost management framework ", Journal of Cost Management; Boston; Nov/Dec 199

Activity-based management, activity-based costing and continuous improvement, all these help in the improvement of the efficiency in manufacturing, better control of overhead costs and the accurate costing of products. With this in mind, We disagree with the advice that Chuck Davis, the firm’s controller, gave Leonard Bryner. The traditional way of costing produce average costs that severely overstated or understated. Without the accurate costs, the firm would not be able to price properly their products and that would be damaging to the firm. With activity-based costing and management, all costs are accounted for with the help activity-drivers and overhead costs are decreased. In turn, the costs that the firm has for their products are more accurate and pricing is much easier.

2. Then we need to understand the customers with whom we have been successful and why.