Question

Cofission Electronics make small electronic parts. The management accountant at Cofission, Jasmine Vake, decides to implement an activity-based costing (ABC) system. She lists the following points to support her decision 1. The recent cost report shows that the ratio of manufacturing overhead cost to prime costs is approximately 3:1 il Cofission is a small company il. Cofission 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 Cofission Electronics need to design as well as manufacture these specialised electronic parts). iv. Cofission Electronics has recently implemented a flexible manufacturing system this practically eliminates any setup costs with this system product customisation takes very little additional time. You are not convinced that all of the above points support Jasmine's decision. Which of the above points contradict Jasmine's decision? Select one: O a. i and i O O b.ii c.i. ii and iv o dil and iv

Answer 1

Activity Based Costing basically help identify the areas where the company can benefit from improving its current processes.

Activity based management focuses on managing activities to eliminate waste and reduce delays and effects.

The answer is d. ii and iv because management accountant decision to implement activity based system contradicts ii and iv points.

Because activity based costing system helps us to allocate our costs better but if it is a small company then it does not help us in a better way because costs are already limited to some extent. So , it contradicts Jasmine's decision.

Similarly, cofission electronics has recently implemented a flexible manufacturing system and this practically eliminates any set plup costs. So, it doesn't require activity based system.