The Importance Of Retaining The Standard Costing System Utilised By The Company, Active Sports Limited ( Asl )

The purpose of this report is discussing the case of Wilkerson Company that confronting tough competition in price cutting in pumps which caused to a big drop of pre-tax operating income from 10% to 3%. After observing the existing costing allocation, we found out there is an issue on the existing costing report that the manager could not be able to see the real situation. In light of this, there will be brought to the discussion on the feasibility of using an alternative costing method – Activity based costing (ABC) in the latter paragraphs.

According to Epstein and Buhovac, (2014), costing system is a process designed to monitor the costs incurred in a certain business. Costing systems are meant to advise the management on how to choose the most appropriate course of action with cost efficiency and capability. According to Cardinaels and Labro (2009) costing system provides detailed cost information needed by management needs to control current operations with the aim of improving the future. Below are some of the costing systems that are common to many organizations (Epstein & Buhovac, 2014).

The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise.

Management by exception can be a useful tool for keeping budgets from spiraling out of control. Companies benefit when managers implement cost-saving and efficiency measures as a result of investigating variances.

The company had a budget of $5,247,250, with the flexible budget being $5,117,385, however the final numbers were $5,096,847, which gives the company an unfavorable variance of -$130,065. Total Variable Cost however was a favorable expense. With a planned budget of $3,967,962 and a flexible budget of $3,869,612 the actual output was $3,805,400 the favorable variance came out to $98,349. Contribution margin was also an unfavorable variance (-$31,716).

Overhead costs include rent, office staff, depreciation, and other. Once the flexible budget was complete, variances between the actual and flexible budget could be calculated (Exhibit B). The variance for frame assembly was favorable with actual costs being $82,663 less than in the flexible budget. The variances for wheel and final assembly however were both unfavorable. Wheel assembly had an unfavorable variance of $50,650, while final assembly variance was the highest at an unfavorable variance of $231,200. Taking into account these three aspects of direct cost, direct cost has an unfavorable variance $199,187. Although most overhead costs are fixed, 2/3 of other costs are variable and increase with the increased production. As shown in Exhibit B, overhead variance is unfavorable at $60,000. The direct cost variance and overhead variable together lead to a total unfavorable variance of $259,187.

Yasin and Alavi (1999) conducted a quantitative study to determine if Total Quality Management (TQM) can produce quality improvement

A variable department manager has many factors to consider when interpreting and analyzing a variance report. Variances can be attributed to factors such as increased or decreased volume, wage increases, cost increases for equipment and cost increases for supplies. Variance reports are a tool that can be utilized to analyze how well a company is doing with meeting current budgetary goals as well as a means for forecasting information for future budgets. In preparing a variance analysis report to be presented to the vice president, the information needs to be simple enough to understand easily, but detailed enough for the information to be useful to

First, we have identified if there is really an insufficiency in the amount of selling prices set by the Sales Department, in reference to Exhibit 1 of the case. We did this through identifying the maximum amount of overhead costs that the company can incur for the three products and comparing it with the total overhead costs. See Table 1 for details.

Bhimani, A., Horngren, C., Datar, S., Rajan, M. et al. (2012) Management and Cost Accounting. 5th ed. Edinburgh: Prentice Hall, p.369 - 378.

with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was

Qualitative cost estimation techniques are based on a comparison analysis of a new product with the products that have been manufactured previously in order to identify the similarities in the new one. Cost estimation for product similar to a past design is done by identifying similarities between old and new product with the help of historical design, manufacturing data and previous experience of an estimator. Sometimes, cost estimation can be achieved by making use of the past design and manufacturing knowledge encapsulated in a system based on rules, decision trees, etc.

C. T. Horngren, A. Bhimani, S. M. Datar, G. Foster (2005), 'Activity-Based Costing', Management and Cost Accounting (Prentice Hall Europe), 345-363

Managerial costing time line Used with permission by the author A.van der Merwe Copyright 2011 All Rights Reserved.

Even though Deming, Juran, and Crosby all have similarities between their key principles in quality management there are several aspects that are different to the approaches. They all recognize the importance of measurement to improve quality; however, the level of importance each emphasizes is different. Crosby and Juran view the cost of quality as the focus of measurement whereas Deming does not use the cost of quality as a focus (Suarez, 1992, p.18). To Deming, meeting the customers’ needs and expectations about a product or service is of higher importance to quality. He also considers unknown costs such as the impact of lost customers to be more significant than visible costs (Suarez, 1992, p.18).