Identify at least three activities applicable to your selected company and an appropriate cost allocation base for each activity.
Assignment Details: I need help with a response to two peer’s discussion posts.
Peer #1-Matthew,
Greetings Class!
Select a real-world manufacturing company.
The company I have chosen is L&L Manufactured Components.
Identify at least three activities applicable to your selected company and an appropriate cost allocation base for each activity.
Product Manufacturing:
Activity: Production of wooden trusses, which includes construction and assembly.
Cost Allocation: Number of machine hours spent on truss construction.
Quality Control:
Activity: High-quality control inspections on joints, lumber, gable trusses, and the proper type and size of lumber plates.
Cost Allocation: Number of labor hours spent on hands-on quality control checks.
Prior and Post Installation Services:
Activity: Meeting prior to installation for accurate measurements, sizing, and types of trusses. Meeting post installation for quality control and final walk-throughs.
Cost Allocation: Number of hours spent out in the field for pre and post-installation services.
Explain to management some of the benefits they can expect from using an activity-based costing system.
Activity-based costing (ABC) provides a more detailed overview of the cost associated with specific activities. This accurate depiction allows the manufacturer to recognize certain areas where resources are being consumed inefficiently. Gaining a better understanding and perspective of an organization’s profit margins will provide valuable insight on where to make critical financial decisions and help in reducing costs. This also assists managers in reducing prices for certain products.
Discuss why activity-based costing methods are more accurate.
“Most companies adopt ABC to get more accurate product costs for pricing and product mixing” (Miller-Nobles & Mattison, 2020, 4-10). Activity-based costing provides a more accurate method of product and service costing, leading to more accurate pricing decisions. It allocates costs constructed on the actual consumption of resources by certain activities. With better insight into costly and non-value activities being more apparent, this allows management to either justify the spending or divert the money to other more profitable cost objects.
References:
Miller-Nobles, T., & Mattison, B. (2020). Horngren’s Accounting; The Managerial Chapters (7th ed.). Pearson Education.
Peer #2-Phillip,
Cost allocation in the tire manufacturing business can be vital in tracking and monitoring various costs that are associated with the entire process. The first activity in our facility could be the mixing process. This involves the mixing of raw materials to create specific rubber for the process in tire building. The second process is the building of the tire and the cure process. Allocating the costs of the building process and the time it takes to cure the tire to meet the specifications. Quality could be the third and final activity. Ensuring quality is a crucial aspect of the tire manufacturing process to meet the customer’s needs and requirements. The cost allocations should be able to reflect the entire process of building, curing, inspecting, and shipping a tire.
An activity-based costing system can offer multiple benefits for management. The first way it can help with the ability of management to make informed decisions and some insight on potential profit for that specific facility. Another way could be based on decision-making to be more beneficial.
The reason is that activity-based costing methods can be more accurate for one detailing specific cost activities. Another is the recognition of overhead costs for a facility and the breakdown of where costs are incurred. This can help recognize more realistic costs incurred to help with better management of cost control, better decision-making, and the management of the resources for the facility.
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