Case 2 Final - Jingya Wu Jing An(not graded 1 Blanket...

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Jingya Wu Jing An (not graded) 1. Blanket Security should adopt the activity-based costing accounting technique (ABC). This approach is different from traditional cost-accounting systems. The traditional cost- accounting system maintains one large overhead pool with a single driver. In the modern world, any costing accounting system is created to provide relevant and timely information to management. The external competition for Blanket Security has become increasingly more intense through the years. With the changing of both the internal and external environments, the Blanket Security needs to further develop tools and techniques for management accounting. Activity-based costing (ABC) can provide more accurate and relevant cost information. In the case, Blanket Security’s bookkeeper and the accountant found that some overhead costs are traceable, but the other costs were allocated to two divisions. Also, the income statement never indicates the cost allocation. Even though Blanket Security has its own overhead costs rate, the rate could not be traced effectively. It means that a cost driver is not perfectly associated with an activity. Therefore, Activity-Based Costing could help solve the company’s accounting problem. ABC uses multiple cost drivers, many of which are based on transactions rather than volume, to trace the cost of activities to the services linked with activities. One important point is that when Blanket Security selects cost drivers, it can group them to activities. Since operations are broad, using many different cost drivers for each activity is not a cost-effective approach. Otherwise, activity-based costing can provide a more reasonable analysis to management for decision-making. For example, in this case, the data out of ABC can provide pricing decisions and product mix decisions. When John Seebo offers an order in a competitive bid, the pricing decisions can help John to set an accurate bid price that is equal or higher costs. When John Seebo is not sure how to mix products to create competitive and profitable packages, product mix decisions can provide cost information to assist in decision-making. 2.
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This note was uploaded on 03/27/2012 for the course ACC 101 taught by Professor Smith during the Spring '12 term at Missouri State University-Springfield.

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Case 2 Final - Jingya Wu Jing An(not graded 1 Blanket...

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