" Activity-based costing systems yield more useful and accurate details than standard costing devices because they use more price drivers to assign support costs to products. " Do you agree with this statement? Explain.
Yes, I agree with this statement. ABC costing systems are used over traditional methods to more accurately measure product/service costs.
What is activity-based costing?
DASAR costing measures the resources used to produce a item or to offer a service. By using actual immediate material expense, actual immediate labor price, and both manufacturing and nonmanufacturing expenses actually received to produce the product/service.
How does it differ from conventional costing methods?
В•Non-manufacturing and manufacturing costs can be assigned to each specific activity / product as well as service, rather than an get worse measure for a number of activities В•Overhead costs may be allocated to each activity and can be based on the amount of actual activity, rather than budgeted capacity В•Allocation bases employed differ from standard based methods
Eg. Generating and releasing a car
Traditional CostingABC Charging
Employee pay$2, 300Compute requirements$300
Purchasing costs$1, 500Purchase parts & materials$1, 500
Developing costs$7, 000Store parts & materials$800
Syndication costs$200Inspect parts & materials$1, 000
Training$1000Manufacture car$5, 500
Perform management$3, 000
Total$12, 000 Total$12, 000
Why has FONEM costing surfaced as an alternative?
В•To make use of the distinctions mentioned above
В•Many companies make a great number of products and services which will consumer several overhead methods В•For many firms, direct labour is no longer an appropriate cost allocation base for cost to do business В•Companies are marketing new items which differ in quantity, batch size and complexity В– for that reason a standard expense rate...