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Plymouth can also use abc informat ion to reduce

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Unformatted text preview: an stress testing. Heat tests are more complex, take lo nger to set up, and are more difficult to design. The simple costing system assumes that testing costs per hour are the same for heat testing and stress testing. 3. The ABC system better captures the resources needed for heat testing and stress testing because it ident ifies all the various act ivit ies undertaken when performing the tests and recognizes the levels o f the cost hierarchy at which costs vary. Hence, the ABC system generates more accurate product costs. Plymouth’s management can use the informat ion from the ABC system to make better pricing and product mix decisio ns. For example, it might decide to increase the prices charged for the more costly heat testing and consider reducing prices on the less costly stress testing. Plymouth should watch if co mpet itors are underbidding Plymouth in stress testing, and causing it to lose business. Plymouth can also use ABC informat ion to reduce costs by eliminat ing processes and act ivit ies that do not add value, ident ifying and evaluat ing new methods to do testing that reduce the act ivit ies needed to do the tests, reducing the costs of do ing various activit ies, and planning and managing act ivit ies. 5­5 5­18 (15 min.) Alternative allocation bases for a professional services firm. 1. Direct Professional Time Rate per Number Hour of Hours Total (2) (3) (4) = (2) ´ (3) Support Services Rate (5)...
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