Scribd Logo
Upload

Welcome to Scribd!

  • ABC Memo

    Uploaded by

    Priyanshi Patel
    89 views4 pages
    1. Activity-based costing provides a more accurate allocation of overhead costs to products and services by tracing costs to the activities consuming resources, rather than simply allocating based on direct labor hours or another allocation base. 2. It takes into account both fixed and variable overhead costs, ensuring all costs are captured in the costing of products and services. 3. While there are challenges to implementing activity-based costing such as selecting appropriate cost drivers and distinguishing between fixed and variable costs, the benefits of more accurate product costing and identification of overhead costs outweigh these challenges.

    Original Description:

    Original Title

    ABC memo (1).docx

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    1. Activity-based costing provides a more accurate allocation of overhead costs to products and services by tracing costs to the activities consuming resources, rather than simply allocating based on direct labor hours or another allocation base. 2. It takes into account both fixed and variable overhead costs, ensuring all costs are captured in the costing of products and services. 3. While there are challenges to implementing activity-based costing such as selecting appropriate cost drivers and distinguishing between fixed and variable costs, the benefits of more accurate product costing and identification of overhead costs outweigh these challenges.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    89 views4 pages

    ABC Memo

    Uploaded by

    Priyanshi Patel
    1. Activity-based costing provides a more accurate allocation of overhead costs to products and services by tracing costs to the activities consuming resources, rather than simply allocating based on direct labor hours or another allocation base. 2. It takes into account both fixed and variable overhead costs, ensuring all costs are captured in the costing of products and services. 3. While there are challenges to implementing activity-based costing such as selecting appropriate cost drivers and distinguishing between fixed and variable costs, the benefits of more accurate product costing and identification of overhead costs outweigh these challenges.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 4

    SUPERCLEAN

    Memorandum

    Conestoga College
    Accounting and Financial Management
    Contents
     Costing Method (Traditional or Activity based profit).........................................................................2
    o Advantages of Activity based costing:.................................................................................................2
    o Disadvantages of Activity based costing:.............................................................................................2
    o Challenge faced by companies while implementing ABC costing method:..........................................3
    MEMORANDUM

    To: CEO

    CC:

    From:

    Date: February 25, 2020

    Subject: Recommendation which costing method SUPERCLEAN should adopt.

     Costing Method (Traditional or Activity-based profit)


    Based on the information we have; it is highly recommendable to follow Activity based profit from the
    two costing methods (Traditional or activity-based profit). Activity-based profit is a costing method
    which takes fixed cost overhead and variable cost overhead into consideration to find the total cost.

    o Advantages of Activity-based costing:


    1. Accurate product cost: -
    Activity-based costing helps to find accurate cost of the product, as this method
    focus on cause and effect relationship in the cost.
    2. Finding of overhead cost: -
    Activity-based costing takes into consideration fixed cost (Depreciation) overhead
    and variable cost (Direct labor, direct material) overhead.
    3. Benefits to service industry: -
    Service organization have almost no direct cost, most of the costs are overhead
    and they do not hold stocks of service as the service is consumed when it is
    produced.

    o Disadvantages of Activity-based costing:


    1. Selection of drivers: -
    Some difficulties emerge in the implementation of the ABC system, such as the
    selection of cost drivers, assignment of common costs, varying cost driver rates
    etc.
    2. Measurement Difficulties: -
    ABC systems require management to estimate costs of activity pools and to
    identify and measure cost drivers to serve as cost allocation bases.
    o Challenge faced by companies while
    implementing ABC costing method:
    1. Distinguish between fixed and variable: -
    The main challenge that the company face while implementing Activity-based
    Costing is they face many difficulties in making differences between fixed and
    variable overheads.
    2. Lack of business Purpose:
    Another issue may exist when implementing Activity-Based Costing system is
    related to the organization’s vision and management commitment.

    You might also like