number 4

number 4 - considering this new option They are ABC costing...

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4. The activity based costing system may be used to improve the company’s accuracy, to increase profit, and make the company more efficient on the whole. To determine the cost effectiveness of this system the STC Company must take all factors into consideration. One potential downside of the activity base costing system is an increase in cost. Because the ABC system is recorded into the system in a more detailed and regular basis the company would have to pay more. The result of this increase in cost would be a more accurate, efficient system. Many companies have benefited from using the ABC system, but at the same time many companies use this method the wrong way. There are 3 facts that some companies don’t take into consideration that STC have to be aware of when
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Unformatted text preview: considering this new option. They are: ABC costing only assigns manufacturing overhead costs consumed by those products, ABC costing uses non-volume related allocation bases, and ABC costing directly traces shipping costs to products and includes non-manufacturing overhead costs caused by products in the activity cost pools that are assigned to products. To determine whether or not switching to the ABC system is worth the increase cost is mostly dependent on whether the company will be able to increase their efficiency enough to offset the cost. More times than not the benefits of the ABC system outweigh the negatives because managers are able to have more accurate and easily interpreted information....
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