The paper "Wallen Manufacturers Management Accounting " is a great example of a finance and accounting assignment. The following is a financial report for the Wallen Manufacturing Company for three of the products. The company is a manufacturer of computer products and lately has been experiencing a decline in sales. The company believes this is due to the pricing approach they used and has taken necessary action to attempt and fix this problem soon. This report is based on financial figures released by the company. Part A: The current approach employed by Wallen Manufacturers is the Volume Based Costing system.
As the name suggests, this system of costing uses a single cost driver based on volume. It basically reports on the direct usage during production, this is usually direct material and direct labour involved in the production process and so the cost drivers could be direct labour hours and direct machine hours for the material handled. In our case, all the overheads are allocated to a single cost pool activity. Then the overhead costs are assigned to single products – Jaza, Nance and Meliss – based on the volume-based cost drivers or basically the total quantity of each product manufactured. Part B: This approach to costing has several problems of its own.
Firstly the approach to costing that it applies is not efficient. This is because cost drivers such as direct machine hours or labour hours do not necessarily imply to be the only cost generating factors during production. Other factors play – probably bigger - roles in the cost incurred during the production process. This method will only apply a single common volume activity across all the products in the production line while ignoring the different characteristics involved in the production process that will affect the final cost of production of an item (Jan 2010). Answer Part A: Anderson and Kaplan say that an Activity Based Costing system, unlike the Volume Based Costing system, does not operate on the assumption that costs are caused entirely by-products (2007).
This system applies the costs of production on the activities during the production process. In our case, Wallen manufacturers have several activities taking place during the production of Jaza, Nance and Meliss.
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