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Many companies recognize that their cost systems are inadequate for today's powerful global competition. Managers in companies selling multiple products are making important product decisions based on distorted cost information, as most cost systems designed in the past focused on inventory valuation. In order to elevate the level of management information, it has been suggested that companies should have as many as three cost systems for (1) inventory valuation, (2) management control of operations, and (3) an activity-based costing system for decision-making. A. Discuss why the traditional cost system, developed to value inventory, distorts product cost information. B. Identify the purpose and characteristics of each of the following systems: 1. Inventory valuation. 2. Management control of operations. 3. Activity-based costing.

Many companies recognize that their cost systems are inadequate for today's powerful global competition. Managers in companies selling multiple products are making important product decisions based on distorted cost information, as most cost systems designed in the past focused on inventory valuation. In order to elevate the level of management information, it has been suggested that companies should have as many as three cost systems for (1) inventory valuation, (2) management control of operations, and (3) an activity-based costing system for decision-making. A. Discuss why the traditional cost system, developed to value inventory, distorts product cost information. B. Identify the purpose and characteristics of each of the following systems: 1. Inventory valuation. 2. Management control of operations. 3. Activity-based costing.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ANSWER A AND B

Many companies recognize that their cost systems are inadequate for today's powerful global competition. Managers in companies selling multiple products are making important product decisions based on distorted cost information, as most cost systems designed in the past focused on inventory valuation. In order to elevate the level of management information, it has been suggested that companies should have as many as three cost systems for (1) inventory valuation, (2) management control of operations, and (3) an activity-based costing system for decision-making. A. Discuss why the traditional cost system, developed to value inventory, distorts product cost information. B. Identify the purpose and characteristics of each of the following systems: 1. Inventory valuation. 2. Management control of operations. 3. Activity-based costing. C. Describe the benefits that management can expect from activity-based costing. D. List the steps that a company, using a traditional cost system, would take to implement activity-based costing.
Transcribed Image Text:Many companies recognize that their cost systems are inadequate for today's powerful global competition. Managers in companies selling multiple products are making important product decisions based on distorted cost information, as most cost systems designed in the past focused on inventory valuation. In order to elevate the level of management information, it has been suggested that companies should have as many as three cost systems for (1) inventory valuation, (2) management control of operations, and (3) an activity-based costing system for decision-making. A. Discuss why the traditional cost system, developed to value inventory, distorts product cost information. B. Identify the purpose and characteristics of each of the following systems: 1. Inventory valuation. 2. Management control of operations. 3. Activity-based costing. C. Describe the benefits that management can expect from activity-based costing. D. List the steps that a company, using a traditional cost system, would take to implement activity-based costing.
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