Question

Nowadays, more and more machines are used in the production, the use of direct labor has decreased, and depreciation has increased. Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.

Assume that your client company uses job costing; you, as a consultant, are writing a memorandum to your client company and recommending ABC. In this writing assignment, please describe the reasons and benefits of changing to ABC.

Answer 1

Memorandum Date - To - Busines ald/ Mom/yyyy Mr . Thank you! for allowing us the opportunity to work with your company. As requested, We have evaluated the atrungth and weakneurs of companies existing cost dysturg and evaluated the desirability of switching from existus cest dysten to au activity based cost syster Our analysis dues products and 'y' to landar- stand how the cxptry and proposed Abe System would coupute product cout.

ou our analysis, we noted in coent methool indirect counts of such finns an Manfactug avaitead expense they cannot auigh direct to specific product wit. Ineted allocole threu cost to specific production name, batch or periods, which tras in incorrect Cesty of the product unit - whereas Activity - baud costry (ABW is an approach to the costry and monitoring of activities, which involve tracing resources consumption and costry final eutput. Abe Toutes attention au colt drivers, the activities that cause cost to incecase. The ABC provide a more accurate method of product/service Corting and non-value adding activities more weible, allows to reduce or eleucate it. It also mables inpsove procluct and cultonur prositability analysis. It is highly recommended to the company to suwitch at ABC wethod for more accurate results