Jet2 Task 4 Essay

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

Competition Bikes, Incorporated (Inc.) makes bicycles for professional and other highly accomplished riders who compete in bike races, biathlons, and triathlons. Approximately sixty percent of all race winners have been victorious using bicycles designed by Competitions Bikes, Inc. This extraordinary success rate is a topic of conversation among racers and has led to exponential success for founder Larry Ferguson who formed the company in 2001 in his garage. Competition Bikes is known for quality products and is leader in the market with the CarbonLite

The following is a summary report to recommend whether Competition Bikes should change its traditional costing method to activity based costing, and an analysis of the breakeven point with regards to sales units and dollars for both CarbonLite and Titanium bikes. It also discusses the impacts to the breakeven point. The cost-volume-profit evaluation and the traditional vs activity based costing method overhead analysis were used for the review and analysis.

The following is an analysis regarding if Competition Bikes Incorporated should change its traditional costing method to activity based costing (ABC). This consideration is being given because the organization is changing its sales strategy in the San Diego plant to produce 9 Titanium bikes for every 5 CarbonLite bikes, and there are indications that manufacturing will experience a 10% increase due to new environmental regulations.

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

Going into 2004, Bob Moyer planned to produce 10,000 bicycles at Mile High Cycles. Construction of his bicycles includes the utilization of three departments, frames, wheel assembly, and final assembly. During this year, Mile High Cycles ended up actually producing 10,800 bicycles to meet higher than expected demand. Bob is curious as to whether or not he was successful in maintaining costs to meet these higher levels of demand.

Businesses – from manufacturing, merchandising and service industries alike – take careful considerations for their costing systems. Setting-up competitive prices in the market can be a result of proper costing methods. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods Zauner Ornaments are currently using and upon conclusion, it will enable us to distinguish the advantages and disadvantages of each costing method.

Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The

Activity-based management, activity-based costing and continuous improvement, all these help in the improvement of the efficiency in manufacturing, better control of overhead costs and the accurate costing of products. With this in mind, We disagree with the advice that Chuck Davis, the firm’s controller, gave Leonard Bryner. The traditional way of costing produce average costs that severely overstated or understated. Without the accurate costs, the firm would not be able to price properly their products and that would be damaging to the firm. With activity-based costing and management, all costs are accounted for with the help activity-drivers and overhead costs are decreased. In turn, the costs that the firm has for their products are more accurate and pricing is much easier.

After analyzing three different costing methods for Caprock Cycle Company, we have made some observations and gathered some suggestions concerning the profitability of Bryan’s company. Process costing, job costing, and activity-based costing are the three methods we used to compare profitability for Caprock Cycle Company.

Schwinn Bicycles is a long lasting and reputable manufacturer of bicycles, which has revealed a rather tumultuous history. The company has even been on the verge of bankruptcy, but has managed to overcome this challenge. Today, the organization is part of the Pacific Cycle Inc., which means that its particular data are difficult to retrieve and separate from those of the parent group.

Activity-based costing, or ABC, is defined as “a total quality management tool for cost and performance measurement of activities, resources, and cost object” (Narong 12). Activity-based costing allows business to accumulate information and data about operating costs of the company. Three things made this popular in the 1980s. First, it “eliminated the product cross subsidies inherent in cost accounting. Then, it revealed the sources of loss that were responsible for the decline in profitability. Third, it acted as a catalyst for decisions affecting profitability” (Turney 4). Activity-based costing allows firms activities to be identified. After the activities are identified, products are then assigned different indirect costs. Activity-based costing is sometimes referred to as horizontal or cross functional cost view. It provides

Numerous articles have been written about Activity-Based costing (ABC) system since it was first introduced back in mid 1980’s. It was generally characterized as the only costing system that could accurately depict and represent product cost in a highly relative complex and complicated business environment. Combined with Activity-Based Management (ABM), ABC aligns the company’s strategic objectives with its product costing system as it distinguishes non-value added activities and determines areas where costs can be possibility reduced (Hughes & Gjerde, 2003).

Stapleton (2004) applied the concept of ABC to analyse cost of business, especially in marketing and logistics activity. It is found that ABC method help organization control and manage incurred by overhead more efficiently. Besides, cost derived from analyzing activity also help the management decide which activity should be stopped or supported. In the meantime, Stapleton also discovered that application of ABC also has some drawbacks and limitation, that is, it consumes a lot of time and manpower in deeply analyzing every activity and sometimes it does not receive support from people who have data [28]. Likewise, a research of Bartolacci (2004) also mentioned the drawbacks and limitation stated above. In addition, if the information belongs to clients, mostly it failed to receive support, so the cost derived from analysis was not very complete [29].