activity based costing impacts planning, control and decision making

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activity based costing impacts planning, control and decision making

activity  based  costing  impacts  planning,   control  and decision making

This assessment will  address the following   learning  outcomes:

• CL03.  Assess  how  activity  based  costing  impacts  planning,   control  and decision making.

Instructions:

• Individual analysis of a case on the impact of activity based costing on decisions related to product costing

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Academic   Honesty  Statement

, Cheating  is deliberately    attempting    to gain  marks  or academic  credit  dishonestly.    Plagiarism  is deliberately                         presenting   another   person’s  work  as one’s  own  without   acknowledgment,     and

includes  submitting   work  specifically   commissioned    from  another   for the  purpose.

I

I understand   that  cheating  and plagiarism   are serious  offences  and that  if I am found   guilty  of

either  of these  offences  I may  be subject  to  dismissal  from  the  Higher  Colleges of Technology.

Student  Signature:                                                        Date:

For Examiner’s  Use Only

Section  (Question)          SECTION ONE           SECTION TWO                     TOTAL

number                              Short  Answ.er       ~       Problem

Marks   Available

Marks   Earned

20                                 20                                   20

Marker   Name                                                                          Date           ‘—–_J

Rev 2-15-2015

Question 1

At a recent board meeting of Sharjah Inc., there was a heated discussion on the need to improve financial performance. The production director argued that financial performance could be improved if the company replaced its existing absorption costing approach with an activity-based  costing system. He argued that this would lead to better cost control and increased profit margins. The managing director agreed that better cost control could lead to increased profitability, but informed the meeting that he believed that performance needed to be monitored in both financial and non-financial terms. He pointed out that sales could be lost due to poor product quality or a lack of after-sales service just as easily as by asking too high a price for Sharjah Inc.’s products. He suggested that while the board should consider introducing activity based costing, it should also consider ways in which the company could monitor and assess performance on a wide basis.

Required

(a) Describe the key features of activity-based costing and discuss the advantages and disadvantages of adopting an activity-based approach to cost accumulation. (11 marks)

(b) Explain the need for the measurement of organizational and managerial performance, giving examples of the range of financial and non-financial performance measures that might be used. (9 marks)

(Total = 20 marks)