Manufacturing Company

1450 Words 6 Pages

Manufacturing companies, like Hampshire Company, rely on the costing data provided by various costing methods to determine financial successes and downfalls. “By tracking and categorizing this information according to a rigorous accounting system, corporate management can determine with a high degree of accuracy the cost per unit of production and other key performance indicators” (Kucera 2018). Therefore, Hampshire Company has requested that I calculate how traditional and activity-based costing impact the company’s operating income. In addition, Hampshire Company has requested that I research and alternative costing method and decide whether or not it should be implemented (Kucera 2018).
A. Identify an alternative costing
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Therefore, the first characteristic concludes that the division of manufacturing costs enables the manufacturing companies “to provide quality information to design a suitable cost system in a manufacturing concern” (Activity Based Costing|Meaning |Features | Objectives | Implementation 2018). Another characteristic of the ABC method is that it makes the distinction among the manufacturing company’s cost behavior patterns, which could be categorized as “volume related, diversity related, events related, and time related” (Activity Based Costing | Meaning | Features | Objectives | Implementation 2018). A third characteristic of the ABC method requires that the manufacturing overhead be traced to a produced unit by the identification of appropriate cost drivers. The concluding characteristic of the ABC method is that the chosen cost drivers represent the manufacturing company’s cost behavior patterns (Activity Based Costing| Meaning | Features | Objectives | Implementation …show more content…
Manufacturing companies who implement the ABC method typically accumulate revenues greater than $100 million dollars. These companies are believed to be able to contribute the resources and human capital necessary to implement the ABC method due to the increases in net income. Therefore, manufacturing companies who earn less than $100 million may opt out of implementing the ABC method because they may not have the financial and non-financial resources available to contribute to its implementation. In addition, the internal and external economies of scale impact a manufacturing company’s ability to implement the ABC method. For example, a manufacturing company’s available resources depend on cost savings despite the industry (internal) or the organization of the manufacturing company’s industry (external). If a manufacturing company is unable to secure cost savings to increase the bottom line, they should not implement the ABC method (Lamb 2003) (Economies of Scale and Scope

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