ACTIVITY BASED COSTING

Activity Based Product Costing and Ethical Behaviour



Activity Based Product Costing and Ethical Behaviour

Question 1

Here, we agree with the advice of Chuck Davis. The indirect cost has somehow directly impact the cost of the production and effect the profitability. The cost of production has two contradictory properties, which sometimes are not well understood. The first is that one should spend producing goods this means generating a cost. When analyzing the importance given to the cost of production, another aspect that should be examined relative to a given cost structure, is that a change in the selling price will have an immediate impact on gross profit for the latter is the balance between income (mainly sales) and the cost of production. Consequently, increases or changes in the sales price, are often perceived as the most important variable (along with the cost of raw materials), particularly when there are wide variations in price (Drucker, 1999).

Question 2

As far as our thinking is concerned from the discussion, we can conclude that the level of discussion is under control ethical norms. Whatever Chuck suggests is according to his experiences and his ability to explain the problems. The only thing which could clarify his understandings was the use of facts and figures. The manager might argue that price changes in the market are of such magnitude as to mask any relatively small improvement in the cost structure (e.g. improved energy efficiency or performance). Moreover, this could confuse them, and that technological developments in the medium and long term, an industry first that would not be competitive and then obsolete (Staubus & George, 1971).

Question 3

From the discussions, it seems like that Chuck is not well aware with the implications of ABC costing system. The fad in costing has a significant impact although short term, but it impacts the cost of production, and this is something crucial for the Leonard. The best driver of costs is one that is casually related to the cost that is assigned. Find a basis of allocation that happened related to the cost is usually impossible. With a system of activity-based costing, the selection of an allocation base or cost driver is commonly easier because we can use a volume measure of activity. For example, a reasonable basis of allocation for the costs of preparation of a machine (set-up costs) is the preparation machine hours (hours of set-up).

Question 4

Management accounting techniques used and forecasts costs to achieve its goal of helping managers to develop plans for short and long term measures of success in implementing these plans, identify problems that require executive attention, choose between alternative methods for achieving the objectives of the company. In any organizational level, of the company-specific problems arise for which accounting is needed to aid in problem definition, to identify alternative courses of action and choose between these alternatives.

Management accounting refers to accounting information developed for the administrators within an organization. In other words, management accounting is the process to identify, measure, collect, analyze, prepare, interpret and ...