Acc/561 Exam Essay

(TCO 6) In an activity-based costing system, cost reduction is accomplished by identifying and eliminating:

This type of cost system further allows the activities to be specifically tracked in each of the company’s markets.

EBITDA - Earnings before interest, taxes, depreciation and amortization is an indicator of a company's financial performance which is calculated in the following manner: ("EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization Definition | Investopedia," n.d.)

This type of cost system further allows the activities to be specifically tracked in each of the company’s markets.

both a and b (Yes.  The corporate structure provides for limited liability and ease of transferring ownership.)

For instance, management is correct in identifying each of the costs using four different activities. These include unit-level activities, batch-level activities, product-level activities, and facility-level activities. This is a great system because the fewer activities Glaser can use to do this, the easier the accounting will be for management. These four activities will allow Glaser to fairly and accurately allocate overhead to product lines. (Appendix B illustrates each of the costs under one of the four activities and also classifies the four activities under one of the three divisions).

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

As shown in Exhibit 2, I have determined the allocation rate of each cost driver, and that will allow me to assign them to different cost pool; base on the activities. Adding up all the number I assigned, will give me the overhead cost for each label of a batch. Sum the number

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

In using ABC overhead costs are distributed differently across the three products, but in total they are the same, in total. However, ABC changes the information that managers receive to make effective business decisions, which will ultimately result in improved business results.

| It provides a separate record for the cost of each quantity of product that passes through the factory.

Activity-based-costing (ABC) system find activities as the drive for each cost, calculate the average cost per driver’s activity, and times budgeted activities for budgeted cost. It is worth mentioning that ABC system is not used to find problems in cost records, or predict future cost based on that.

Activity-based costing takes a different approach, so that the costing might not be at the route level, but based on other means of breaking the company's activities down. At FedEx, a good way of breaking down costs is by customer. For example, some customers are served by multiple couriers, but there is also the question of where the customer sends their packages to, and what type of packages they send. These are things that FedEx accounts for in its pricing scheme already. Packages that are larger cost more; packages that go farther cost more. But there is more that goes into servicing these accounts. For example, accounts have sales and service representatives. Typically, these have large territories, so the expectation is that most accounts will require little service beyond that which the courier provides. A rep might visit a medium-sized customer once a year, and a large customer 2-3 times per year. A station manager might deal occasionally with the largest customers in the area. A

To be able to meet our first objective, we should calculate Gibson’s activity costs based on the ABC approach. In doing so, we should be able to select appropriate cost drivers for each costs. We believe that Rebecca’s classification method is more appropriated compared to Gibson’s traditional approach.