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Hi sir:
I am new member. My brother told me about opentuition and praised you alot. I am taking f5 in december attempt. Please help me with the following:Question ABKABER : (Its part b is a big issue for me I hope so you know that question )
Part(b): Requirement: Explain the implications of abc for abkaber plc, and is so doing evaluate the issues raised by each of directors.
The marketing director argued: ‘I am in the process of negotiation a major new contract with a motorcycle rental company for the sunshine model. for such a big ordeer they will not pay our normal prices but we need to at least cover our incremental costs. I am not convinced that abc would achieve this a it merely averages costs for our entire production.
sir, the examiner answer this para with mentioning the problems of abc, i dont know why he/she is discussing problems?
sir, is it true that abc merely averages costs for our entire production plz explain:
thanxIn principle, ABC is a better approach to dealing with overheads than the ‘traditional approach’ of simply absorbing the overheads over labour hours or over machine hours.
However, then marketing director is specifically talking about a major new contract he is negotiating. Understandably, he needs to fix a price that will more than cover the costs, but this can be lower the the normal selling price based on the normal sales that are happening at the moment.
For this sort of decision, a relevant costing approach may be more suitable. (Relevant costing is covered in a later chapter and lecture (‘short-term decision making’).
The examiners answer is therefore to an extent agreeing with the marketing director and explaining why there would be problems in simply using ABC in this case.Thanks , but is it true that abc merely averages cost for our entire production
?On its own, the sentence can be taken in various different ways. However, in the context of what the marketing director is saying, it is true. It calculates the total overheads applicable to each product, but then averages it by having the same cost per unit. (Not the same for each product, but the same for all units produced of each particular product.)
So all product X’s may be given a cost of $10 per unit, all product Y’s may be given a cost of $15 per units and so on.
That is fine normally, and the costs are arrived at in a more sensible way than using traditional costing. However, when it comes to a special contract (which is effectively what the marketing director is talking about) then as I wrote before, a relevant costing approach might be a more sensible approach. (There is never such a thing as a ‘best’ approach in costing – it is up to the company to decide what approach is most useful / sensible in the particular situation.)
Thanks alot sir, now i got it thanks again . one more thing sir i dont receive notification of your reply in my mail box, even i have checked ( notify me of follow-up replies via email)
THanx
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