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Hello there,
I was trying to do this question from kaplan exam kit….and the question was about discussing the conditions under which activity based costing is most effective..and i am not getting some points in the answer that they have mentioned …. like they gave stated ABC can be used in a single product business when management decisions are required to determine the level of production. later they have stated how optimum level of output can be defined once cost can be split between fixed and variable costs. I really am not getting all these parts as how can ABC be used in a single product business. Moreover, they have stated that at last fixed costs are those costs that do not vary with production and so it is possible to undertake profitability analysis in relation to activity levels….what is this suppose to mean ???!! could someone please help me with this…??? really stressed out with F5:(!!
Single product , very known activities will be there!
more than one product number of activities will be high.. so it will be difficult to recognize and classify costs to relevant product!last point is about decision making.. it is saying that we can take decisions on Activity related costs , as fixed costs are ignored for decision making purpose!
well take this topic as easy topic.. and do not worry about it!
Good Luck
thnx a lot for the help….!!! but i am still not getting one thing……that if very known activities are there….. then ABC costing should be used for this??? and what does it have to do with defining optimum level of output once costs can be split beetween fixed and variable costs :S? sorry i may sound dumb….but i really m not getting any help from my university…..they do not even touch the exam kit……..i have to read the answers and try to understand it myself…..n kaplan exam questions seems extremely tough to me…
Moreover, could u tell me whether just eh kaplam exam kit questions (not the past papers) are important for practice…?? i really cant understand most of them as they seem extremely tough !!!
rezwana
your unoversity will touch kit in end..
look in other methods of costing , there is some sort of amount or % allocated, either any activity occurs or not , costs are included in the unit price! which decreases the profit! while in acitivity we add activity related costs.. so price differs.. and thats why we calculate optimum level.. to find out how much costs are saved due to change in method!well for practice, exam kit includes past papers! do kit first then go for past papers..
when we do exam kit we do not feel that we are doing exam question.. but when we do same question from past papers there is some ohter feeling there!hope my answer will be helpful now..
good luck
Well…..first thank you sooo much !!!!! you have been a great help!! and about my university…….i did my F5 …and gave the exam this june….was a disaster indeed…i got sick so couldnt cover the whole syllabus…n the university tutor of F5 dsnt make us understand the theory…..they just dictate wats written…thats the problem with the tutors of this country….so i am reading the theory myself and all….n there are some parts which are tough for me to understand by myself…..they just touch some of the past papers and none of the exam kits book questions…..they say we shouldnt practice them….as its extremely tough and not required
n srry but i have one more question regarding this……is it that we calculate the output after we have calculated the costs??? i understand the absorption costing and ABC methods of allocation….how the later is activity related and all……i am just not getting where is the output coming from :S?!! are we calculating it after calculating the costs….???isnt the output (that is the level of units) always given …….
thnx once agn for all the help………!!! really appreciate it!!
Output (units of product) is given almost in every paper.. or that is given indirectly.. like cost per unit and total cost..so by dividing total cost with cost per unit we can get units of product.. and so sometime certain % is given for activities..
well leave university tutor and post your queries here..
i will suggest you to watch video lecture by OT also..Thank you!!!! :D…….i do get it now…….well thats what i have been doing…..OT is the biggest help ever…the video lectures r just plain excellent…. n all u guys over here r million times better then my F5 tutor!!! i am currently doing the kaplan study book and exam kit for F5 along with OT notes….
r u done with ur ACCA…….????…really appreciate all this help 😀 !! Thanks a dozens!!!
Could u also tell me what is the connection of inventory with ABC???? like in an answer they have stated that ” Other advantages of ABC in a multi-product business relate to the accurate valuation of inventory and facilitating the effective management of inventory levels with multiple products.
you are welcome! :d
yes there is connection between ABC and inventory..
when there are multiple products, what company does it calculates total inventory consumption and divide it on total units.. but this is not the true valuation all the time. some products might require high consumption and wastage also! so the unit is charged high..
while ABC reflects accurate consumption for the product, so the efficiency of management is increased and true picture of unit price is reflected… 🙂
so this is what I can explain 🙂good luck
I am finalist.. need your prayers..
Final two papers P4 n P7 result is awaited..aaa r u saying they take the total inventory cost and divide it with the total unit so as to get the per unit cost??? and since ABC reflects a more accurate unit costs…..so inventory will be calculated more accurately..???…thereby more efficiency in managing inventory :S??
n woww !!!! ur a finalist!!!! Hopefully u will get the best results..dnt wrry!!!! 😀
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