Activity-Based Costing Case (Managerial Accounting) – Case Study Example
Finance and accounting 2. I would advise the management to go ahead with distressed finish business as it is evident that it indeed generates profits. It is noted that the primary objective of every business is the generation of profit, minimize the cost of production and enhance the company value. Additionally it should continue with the company since it has an effective cost management that enables the management to make sound decisions as far as production level and an addition of new products is concerned.
3. The management should provide training to the employees who are involved in the shipping, material handling. This strategy will decrease the cost of material handling as there will be efficient handling of materials and a consequent reduction in wastage of material. This will ultimately reduce the aggregate cost and hence increase the profit generation of the profit.
4. Activity Based Costing involves the computation of the cost depending on the number of activities. In this method, the cost is neither apportioned nor associated. In this case, machine hours are the cost driver of the change-over costs. I agree with controller’s ultimate classification of product –sustaining costs as it is pursuant to cost accounting principles and can, therefore, can be adapted to make sound decisions.
5. The other financial issues to consider are the relevance of the order of the stipulated principles of computing the costs by companies. Any cost calculation that is inconsistent with the accepted principles is irrelevant and cannot be relied upon. Furthermore, the reputation of the business should be considered as it plays a significant role in the sustainability of the business for unforeseen future.