Safeway Electronics make small electronic parts. The management accountant, Belle Ramo, decides to implement an activity- based costing (ABC) system. She lists the following points to support her decision: . The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3. . Safeway Electronics is a small company. . Safeway Electronics has three product lines: basic parts (parts that are common to many products and many suppliers), customised parts (electronic parts that are highly customised to very specialised electric motors), prototypes (where Safeway Electronics need to design as well as manufacture these specialised electronic parts). . Safeway Electronics has recently implemented a flexible manufacturing system; this practically eliminates any setup costs; with this system, product customisation takes very little additional time. Required: Which of the above points support the use of ABC in Safeway Electronics? Explain why.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Safeway Electronics make small electronic parts. The
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. The recent cost report shows that the ratio of prime
costs to manufacturing overhead cost is approximately 1:3. -
. Safeway Electronics is a small company.
-
. Safeway Electronics has three product lines: basic parts (parts that are common to many
products and many suppliers), customised parts (electronic parts that are highly customised to very specialised electric motors), prototypes (where Safeway Electronics need to design as well as manufacture these specialised electronic parts).
-
. Safeway Electronics has recently implemented a flexible manufacturing system; this practically eliminates any setup costs; with this system, product customisation takes very little additional time.
Required:
Which of the above points support the use of ABC in Safeway Electronics? Explain why.
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