ABC at Scotty Accents Company Case Study Example | Topics and Well Written Essays - 1500 words

ABC at Scotty Accents Company - Case Study ExampleThis has been proven in the good example of Scotty Accents where one costing system - absorption costing indicates that the turnout of brass section was not as productive as Chrome while the former(a) occupation base costing (ABC) indicates that it is the other way around. Therefore, unlike costing systems provide different results and can lead to different decisions being taken in foothold of pricing and product mix. This problem is known as product-cost cross-subsidization where the over-costing of one product in Scotty Accents exercise leads to under-costing of the other product (Horngren et al 136). 2.0 IDENTIFICATION OF KEY BACKGROUND INFORMATION The income statement that has been generated at November 2011 indicates that the Chrome baby-sit kitchen taps which was just introduced generates a higher net income than the Brass model which the company has been manufacturing for over septenary years. However, the decision t o concentrate marketing resources on the Chrome model and begin the process of phasing out the Brass model should not be taken at this time. The reason is that a calculation produced by the mastery Jimmy Nader who proposes another costing system (ABC) indicates that the Chrome model is less profitable. While I image the concern expressed by the president, decisions on what to produce and the quantities to produce should be based on a system that generates reliable information. Not all activities are driven by volume and so it is easier to nominate costs based on activities associated with a product. This method identifies activities such as soldering, shipments, quality control, purchase orders, auto power and machine set-ups. The cost objects Brass and Chrome are then assigned costs based on the activities that relate to their production. Each activity has its own cost storage allocation base and in this case the cost allocation base for soldering is the emergence of solder p oints for shipments number of shipments quality control number of inspections purchase orders number of orders machine power machine hours and machine set-ups number of set-ups. Although, Nader admits that there are shortcomings with the allocation base for almost of the activities that is the best that could be done at this time. ABC is a very accusing measure but Mason wants some subjectivity to be introduced in order to suit her desires. However, this is the send-off time that Chrome has been introduced and the process can be refined to gain efficiency improvements in the production of this model. ABC is a widely recommended approach that has the advantage of identifying causally related cost drivers. In fact, some of the advantages include ABC places emphasis on individual activities as main cost objects each activity having a specific purpose (Horngren et al. 140) Higher levels of accuracy can be achieved using ABC since the method involves calculating the cost of eac h activity and assigning costs based on the activity which direct to the production of the item (Horngren et al. 140) ABC systems facilitate more favorable pricing and product-mix decisions (Horngren et al 136) Process improvement and product design can be facilitated so that decisions relating to cost control can be do