Question

V In the following scenarios, would you recommend that management use a plantwide allocation system of activity based costing? In bidding for jobs, managers lost bids they expected to win A. Plantwide Allocation and won bids they expected to lose. B. Activity Based Costing The calculated cost of the products are very similar under different methods of allocating overhead. The industry is very competitive and pricing is important. The company has very few indirect costs. The company produces few products, and the products consume resources in a similar manner. The company produces high volumes of some of its products and low volumes of other products. < <

Answer 1

1. Activity based costing : As Activity based costing in bidding will increase the profitability by predicting acurate overhead cost.

2. Plantwide Allocation : As cost of production is similar under different method therefore it is not necessary to allocate cost according to activity.

3. Activity based costing : As industry is competative, pricing is the main factor . Under activity based costing costs are accurately allocated based on activity unlike in Plantwide allocation where average overhead is allocated to cost of product

4. Plantwide allocation : As company has few indirect cost Average overhead rate can be allocated to cost . Here Acitvity based costing is not possible as company donot have much overhead to be allocated.

5.Plantwide allocation : As company has few products and consume resources in similar manner. Acitivity Based costing in beneficial where there are multiple products or consume multiple resurces

6.Acitvity Based costing : As company has different volume of products Activity based costing will be used to alloacted cost according to the volume produced .