Question

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

Answer 1

Activity-based costing can lead you to believe that the value of the product you have is if you do not use Activity-Based Costing (ABC) methods, you may make the wrong decision based on flawed information if you do not have the right information. General Chat Chat Lounge.

Activity-based costing provides a cost-effective method of production, which allows accurate pricing decisions. This increases the understanding of overheads and cost drivers; And makes it more effective at adding valueless activities, which allows professionals to reduce them. ABC Cost is able to find a better way to eliminate allocation of overheads. This enables the profitability explanation of the customer. So it supports permanent management and management such as scorecards.

ABC is focused on cost drivers, so these costs increase costs. Traditionally exploitation has focused on the volume-related drivers of labor in expensive, while activity-based costing also uses drivers on transactions, such as the number of orders received. Thus, legally variable overheads are traditionally considered fixed costs.

Benefits of activity-based Costing:
Provides the actual cost of a specific product. By allocating overhead production to businesses and processes that use activity more efficiently Know the goals of inefficient processes and reforms.
Production determines the profit ratio more precisely. Find out what kind of unnecessary costs are.
Overhead manufacturing costs are better assessed.

ABC determines the exact value of a product by essentially converting it into a direct cost of production, in principle the indirect cost. It measures prices from different sources of indirect costs and uses them to allocate these costs for a specific event.