FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis

7) When costs are assigned using the single cost driver, number of pages printed, and then what is the effect on the Wealth Managers versus Health Systems?

After assigning the cost using the cost driver rate to the activities of Wealth Managers and Health systems, it is analyzed that manufacturing overhead cost estimate of pages for Wealth Managers during the year 2009 was $2,100 while for Health Systems during the year 2009 was $2,660. Although the cost driver rate is same for both but the difference in the total cost is due to the difference in number of pages.

However, after determining the cost driver rate for each activity the total manufacturing over head cost is calculated, which resulted in $3,430 for Wealth Managers and $830 for Health Systems. The huge difference in the total manufacturing cost is due to the difference in the no. of activities. Health systems incurred lower cost as compared to Wealth Managers because it did not have any activity of design changes while it incurred high activities of Inspections, which had the lowest cost driver rate among all.

8) Explain (in detail) how activity based costing systems can provide more accurate product costs than traditional cost systems.

Under the traditional technology of distribution of indirect costs, are made apportionments of costs of service centers to production centers, but the cumulative costs in the production centers are assigned to products or processes usually based on machine hours , man hours or units produced, but these rules do not accurately reflect the resources consumed by different products or processes (Bradtke, 2007). The methodology of Activity Based Costing (Activity Based Costing) is based on the fact that a company to produce products or services need to perform activities which consume resources, so activities are funded first and then the cost of activities are assigned to different cost objects (products, services, customer groups and regions, processes, etc..) consuming such activities, in such a way we achieve a much greater accuracy in determining the costs and the correlative profitability.

The ABC in Action Management systems activity-based costing (ABC) located overhead costs to specific activities causing them, thereby providing a safer product cost. Four key concepts differentiate cost-accounting systems based on activities of the traditional cost accounting, which allows systems to activity-based cost data provide more accurate product (Brimson, 1995):

Accounting Activity

In a system based on activities, the product cost is the sum of all costs required to manufacture and deliver the product. The company development activities consume resources and the availability and use of resources create costs. Accounting activities of an organization breaks into a structure of activities that provides a reasoned analysis of cause and effect of how the key objectives and associated activities create costs and result in products. According to Brinson, an accounting of cash activities using the following method (Bradtke, 2007): A. Identify key activities to be carried out to meet the objectives of a company. The activities allow the identification of how a ...