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activity based costing impacts planning, control and decision making
This assessment will address the following learning outcomes:
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Section (Question) SECTION ONE SECTION TWO TOTAL
number Short Answ.er ~ Problem
20 20 20
Marker Name Date ‘—–_J
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.
(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)