Baseball Products, Inc. ABC Costing
Name
MBA Semester 1 Exam
15th August 2019
Baseball Products, Inc. ABC Costing
ABC Costing methods assigns cost to services and products basing on the resources consumed and activities that go into them. This assigns more indirect overhead into direct cost unlike traditional costing.
This costing method is more accurate since it reflects the closely the true cost and profitability of an undertaking in a business. By calculating cost to reflect the true nature and real picture of a business, an accountant is in a good position to detect errors and mishaps that may arise in day to day operation. This also enable prediction of profitability as they know the amount of input that can produce a certain profit hence advising management accordingly. This is possible through the combination of direct and indirect input direct inputs (Cooper, 2017). Traditionally they were all separate.
Overhead costs:
| Activity | Bats ($) | Gloves ($) |
|---|---|---|
| Set-ups | 200 | 400 |
| Machining | 2,250 | 5,250 |
| Receiving | 900 | 2,100 |
| Packing | 5,000 | 11,000 |
| Engineering | 8,800 | 13,200 |
| Total | 17,150 | 31,950 |
In conclusion, the overhead cost incurred for manufacturing gloves is almost about twice that of bats. What brings about the difference is packaging and receiving activities.
Reference
Cooper, R. (2017). Target costing and value engineering. Routledge.