Answer to Question #272639 in Management for Zeinab

Question

The company’s controller recently attended a conference at which activity-based costing systems were discussed. He became convinced that such a system would help Future Logistics’ management to understand its product costs better. He got top management’s approval to design an activity-based costing system, and an ABC project team was performed to discuss how they can benefit from ABC in preparing the capital budget. Write a memo to the team, in no more than 500 words, commenting on the situation company’s team has been facing. In your memo explain how an activity-based capital budget differs from a conventional capital budget and describe the impact of activity based costing on capital-budgeting decisions. 

Answer 1

Activity-Based Costing (ABC) is a machine that is going past conventional fee charge fashions with appreciation to oblique fee calculation fashions.

This technique became advanced withinside the United States. Robert Kaplan appears because the founding father of the theoretical standards of interest primarily based totally costing in the fee control understanding area.

In conventional fee charge structures along with the fee center and surcharge methods, oblique prices are allotted primarily based totally on volumes of merchandise, as an instance hour of labor and gadget hours. The prices aren't allotted to the fee drivers and there may be no causal relationship. This makes it difficult to decide the prices of the manufacturing elements and overheads due to which a distorted photo can be supplied in phrases of prices.

Unlike conventional fee charge structures, interest primarily based totally costing does set up a causal hyperlink among the fee drivers and oblique prices. Bypassing in this perception to the accountable fee drivers, an obvious and fee-aware behavior is stimulated.

The implementation of Activity Based Costing can assist personnel to apprehend the unique fee classes and to examine sports that upload fees. This is likewise a manner to discover what sports do now no longer upload fee and have to consequently be eliminated.

In this way, enhancements may be found out which can cause better overall performance results. It additionally contributes to strategic traits inside fee charge calculations. More correct fee facts can assist a corporation in replying to aggressive gain and positive selections withinside the Ansoff Matrix (PMM).

ABC identifies fee organizations of interest centers in businesses and allocates prices to services and products primarily based totally on some occasions or transactions which might be really essential in a method to supply the product or service.