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Executive Summary

Executive Summary - different products While the...

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Executive Summary As a consultant for the ORS company, our group came up with the following conclusion; they should use the ABC system with multiple cost drivers over traditional single cost driver system. Through careful analysis, we figured that the proposed ABC system improved the accuracy of the job costing within the firm. With the current costing system’s single allocation base, costs lead to over-costing of high volume products and under-costing of low volume products, which means that they are not being correctly reflected by the product. With manufacturing overhead being charged to all the products under the traditional, some relatively cheap products are accounted as higher costs to manufacture. All the while, some expensive products are accounted as lower costs to manufacturer. Because the proper costs are being allocated to specific costs pools, ABC system does not lead to overlap of costs to
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Unformatted text preview: different products. While the traditional costing method is designed to focus on financial accounting, ABC system enables companies make internal-decisions easier. Therefore, even though implementing ABC system costs more than traditional costing method, it should be advisable to use this system if the company can make more profits after taking into account the cost of activity base costing system. Applying ABC system to investigate the cost structure for the average job offered by ORS company is more appropriate than using traditional costing method. ABC system is generally effective for non-manufacturing company, whose proportion of the overhead costs is relatively high like ORS company. Using ABC system will improve this accuracy and allow the firm to make better decisions based on more accurate information....
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