American InterContinental University Abc Costing Paper

User Generated

AVPB74

Business Finance

American InterContinental University

Description

Minimum Weekly DB Expectations

  • Post an original and thoughtful Main Post to the DB prompt.
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Simpson Brothers Manufacturing Company has been using a traditional overhead allocation method to allocate costs to products since the company began. Although operations have been running fairly smoothly, the owners have been wondering if they should investigate a new method known as ABC costing. Some of the company's products are highly labor-intensive, while others are manufactured using highly automated production lines.

They like the sound of the name, but they don't understand in what way the method differs from the method they already use. The method they use allocates overhead based on labor hours used for each product. Since labor is certainly an "activity," they are having trouble understanding how their costing system would change.

  1. Discuss the main differences between ABC costing systems and traditional overhead allocation systems. Based on your knowledge and experience, which method you prefer and why?
  2. How might your company benefit from using ABC? Describe any experience you have with ABC?
  3. Are there any circumstances for which you would not recommend that your company switch to an ABC costing system?
  4. In your opinion, discuss why is overhead allocation necessary in most manufacturing environments?
  5. What problems are caused by the allocation of overhead? In your judgment, which of the problems associated with the allocation of overhead are overcome if ABC costing is used and do any problems remain?

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Explanation & Answer

Hello. I have completed the Main Post task. I will write the responses in a different document as you have instructed once you send them. Goodluck 😇

1.

NAME:
INSTITUTION:
DATE:

2.
In a manufacturing company or organization, it is important to have the cost of each
product being produced. This information will assist in the decision-making by the management
and helps to avoid losses. A proper allocation of overhead is crucial in determining the total cost
of production. Some companies and businesses use a simple method of overhead allocation
called the traditional allocation method. However, some manufacturing companies tend to use a
more sophisticated method of cost allocating called activity-based costing (ABC). This method is
commonly used by an organization because it is accurate and appropriate.

QUESTION 1.
Main differences between the traditional costing and the ABC Costing.
1) ABC Costing focuses mainly on the activities that are involved in production to
determine the cost, while traditional costing focuses on the structure of the
business to determine the cost.
2) ABC always produce costs of the products that are accurate while traditional
costing provides the cost of the product ...


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