Week 13 assignment.docx - P11-1 The current absorption...

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P11-1: The current absorption based accounting system has evolved and is similar to the system used by many other firms in our type of industry. The fact that we hold a competitive position in the market place with the current system implies that it is at least adequate and has many unseen advantages. Activity based cost systems are advantageous in plants where the output is not homogeneous in inputs or volumes. An analysis needs to be performed to determine if product costs determined from an activity based cost system are significantly different from product costs as currently calculated. Moreover, even if some product costs change dramatically, what organizational effects will be generated with respect to performance evaluation? Who will be the winners and losers inside the firm and whose ox will be gored? Activity based cost systems are costlier to establish and maintain than absorption based systems. ABC usually improves the accuracy of product costs for decision making. However, in improving costs for decision
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