Description
Each student is required to read the case and address the issues raised at the end of the case. You are expected to conduct research relating to: activity based costing, activity based management and product profitability and relate this back to the case study requirements when preparing your assignment. The assignment should be in REPORT format.
VisAudioTech Corporation commenced operations thirty years ago in the competitive entertainment technology industry, producing custom made remote controls for videos. A few years ago, VisAudioTech began manufacturing several different types of remote controls and now two of these, account for the majority of the company’s sales. This case focuses on these two types of remote controls: the simple universal remote control for digital 4K television and 4K DVD player (4TD) and the deluxe universal remote control for surround home theatre and room lighting (SHTL).
Explanation & Answer
Attached.
1
Management Accounting
Student’s Name
Institutional Affiliation
Date
2
Table of Contents
Executive Summary…………………………………………………………3
Introduction………………………………………………………………… 4
Activity-Based Costing (ABC), and Activity-Based Management (ABM)…4
Total and Unit Cost (Traditional Costing) ………………………………….. 7
The New Costing System……………………………………………………8
Total and Unit Cost (Activity Based Costing) ………………………………8
Comparison of Activity Based Costing and Traditional Costing……………8
Information To Consider and Strategy to Implement……………………….9
Conclusion………………………………………………………………….10
Bibliography…………………………………………………………………11
Appendices…………………………………………………………………..12
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Executive Summary
VisAudioTech is a remote-manufacturing company operating in the entertainment
industry for over thirty years now. Its two main products are SHTL and 4TD. The 4TD
remote controller is a common product and has a highly competitive market, which
explains its price sensitivity. The SHTL is a new product that incorporates complex
technology and uses different production materials from the 4TD. Having unique
properties, SHTL has a premium price. The company’s profit has been decreasing for
the last two years. Therefore, the sales manager suggests an increase of 4TD sales in
the market, which the production manager rejected, who opts to increase the SHTL
product in the market. This paper applies traditional and activity-based costing to
determine the right course of action that will increase VisAudioTech’s profits.
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Management Accounting
Introduction
ABC is a costing methodology that identifies company activities and
proportionally assigns costs to every good or service. Activity-based costing increases
pricing accuracy resulting in higher company revenue. Also, the obtained cost driver
information provides a better understanding of the costs of production. Production
efficiency improves because unwanted activities generating low-value are eliminated
from the operation process (Beheshti, 2004). ABC enables evaluating a product line
based on profit gaps and the true cost of goods and services. This paper aims to discuss
the two management accounting methodologies, ABC, and traditional in detail by
focusing on a VisAudioTech case study.
Activity-Based Costing (ABC) and Activity-Based Management (ABM)
ABM refers to the use of value chain analysis or activity-based costing to evaluate
organizational activities. Activity-based management develops the cost of activity by
determining the value it adds. The first step is identification and analysis, which
involves finding an organization’s essential activities (Desti, 2015). These activities
should have the greatest impact on the firm’s finances. The second step is to perform a
value-chain analysis. To determine how much activity costs, the manager sums up all
the direct and indirect costs related to it...
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