i. The allocation of the current method of allocating of warehousing and shipping cost is not really correct. The current method is direct method which ignores
In term of Shipping and Warehousing cost, low volume products should incur this cost instead of both high volume and low volume products. Because, high volume products are deliveried directly to customer so it does not incur the cost of shipping. The low volume products which are sent to distribution center incurred the cost of shipping and warehousing. However, the cost of shipping and warehousing are allocated to both high volume and low volume products. Therefore, this allocation method is incorrect.
ii. ABC systems uses different cost drivers for different activities so that they are more accurate cause of cost because they indicate the cause and effect relationship between the ...view middle of the document...
Total cost of Sand W: $1,160,000 ( $500,000+$600,000)
Total quantity of LVP: $40,000 (20%* $200,000)
Fee of S and W: 1,160,000/40,000= 29/ton
iv.we disagree with Tuan proposal because his idea just focuses on the average profit of both high and low volume product. However, it may be correct in term of marketing side. The reason why Tuan gives this proposal b/c he compares the profit between high and low volume products:
- Low volume products; lower sale, higher profit
- High volume products: higher sale, lower profit
Thus, inefficiency allocation
We just to allocate appropricate cost for high volume no need to drop
The accounting systems provide the external reports for investor not for management board. Thus, it cannot help Tuan to make correct decision. He should use internal reports.
iv. The benefits of ABC that the management of AAA should considered are improving business process, identify the wasteful products and encourage to make good decision. In term of improving business, using ABC method can help to identify add value and non-value activities. For AAA company, it can adreess the non value added activities and AAA management can considered to eliminate these activities to minimize the cost, so products will be more profitable. In term of making better decision, ABC model provide the more accurate cost information. AAA management can use ABC model to identify the most accurate cost involve to each product. And then, they can find the products cause the most cost and the less cost and the reason why the cost of these products are so high or so low. And then, management can decide to increase the production of profitable products and lower productions of less profiutable. In term of identify wasteful products, ABC used to identify wasteful products and unnesccesary cost, so that resources can be used productively. Management of AAA can use ABC to find out wasteful products