Module 5 Case
ACC 501 Accounting for Decision Making
This Module 5 Case paper will discuss the Farm Council Case and ask specific questions related to proposed solutions using Activity Based Costing. Also discussed will be what would happen if Activity Based Costing is not used. Lastly, the assertions made in the article “Throw Out Fixed and Variable Cost Thinking—Bring In Activity-Based Costing for Distribution Decisions” regarding variable and fixed costing will be discussed.
1.) Do you think that this case study with its proposed solutions will be useful to agricultural enterprises seeking to employ management accounting techniques? Why? Be specific in identifying benefits and possible drawbacks to the proposed solutions.
Yes. I think the case study with its proposed solutions would be useful to the agricultural enterprises seeking to employ management accounting techniques. It is because the study adopts the activity-based method of costing product and cost allocations. Activities are the main focus on activity-based costing. The main theory in ABC is that overhead costs are originated by an array of movements, and those different products make use of these activities in a heterogeneous way. Costing the activity is normally an in-between step in the distribution of overhead costs to products, to acquire more precise product cost information. However, occasionally the activity itself is the cost object of interest. Like for example, manager of a company might desire to know how much the company spends to acquire their raw materials, as input in a sourcing judgment. The activity of acquiring the raw materials incurs costs associated with negotiating prices with suppliers, issuing purchase orders, receiving fabric, inspecting fabric, and processing payments and returns.
The steps to product costing are: 1) Identify the cost; 2) Identify the direct costs associated with the cost object; 3) Identify overhead costs; 4) Select...