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Unformatted text preview: erhead result s in Rega l showing a much lower profitabilit y under the ABC system. By the same token, the ABC analys is shows that Monarch is quite profitable. The simple costing system overcosted Monarch, and so made it appear less profitable. 3. Duval’s co mments about ABC implementation are valid. When designing and implement ing ABC systems, managers and management accountants need to trade off the costs of the system against its benefits. Adding more activit ies would make the system harder to understand and more costly to implement but it would probably improve the accuracy o f cost informat ion, which, in turn, would help Applewood make better decisions. Similarly, using inspection­hours and setup­hours as allocat ion bases would also probably lead to more accurate cost informat ion, but it would increase measurement costs. 5-47 4. Act ivit y­based management (ABM) is the use o f informat ion fro m act ivit y­based costing to make improvements in a firm. For example, a firm could revise product prices on the basis o f revised cost informat ion. For the long term, activit y­based costing can assist management in making decisio ns regarding the viabilit y o f product lines, distribut ion channels, market ing strategies, etc. ABM highli...
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