Managerial Accounting

Using your favorite search engine, choose a company which uses the ABC method for costing inventory. For instance, Toyota and Coca-Cola.

Assume you are the owner of the company that produces the product. You have been offered the option to outsource the product’s component parts instead of making them. What cost factors would need to be considered? Does it make more financial sense to outsource these parts? Explain with examples/assumptions.

Assume the product was being made on an old piece of machinery that is slowing down production and causing delayed completion times. You have been given the option to either buy a new replacement piece of machinery or have this current machine reworked/repaired. Which option would you choose? What factors would be considered? State all assumptions and be sure to describe how incremental analysis would be used to make this decision.

  • Provide background on the firm and how it utilizes the ABC method within its operations.
  • What are possible alternatives to this costing method? Provide 2–3 examples.
  • How does the ABC method provide a more accurate and realistic way of valuing indirect costs? What types of resources are needed to use this method? Hint: Think about time studies, activity drivers, activity pools, and activity bases. Does the engineering team or marketing need to be involved? Explain.
  • Finally, explain the major strengths and weaknesses of the ABC method. Are the benefits worth the costs? Explain.

Managerial Accounting

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