Managerial Accounting Essay
Discussions for Managerial Accounting:
Week 4: Discussion 1
How does activity-based costing differ from the traditional costing approach? When would it give more accurate costs than traditional costing systems? * Activity based costing (ABC) is a method for assigning costs to products, services, projects, tasks, or acquisitions, based on the activities that go into them and the resources consumed by these activities. ABC contrasts with traditional costing, which sometimes assigns costs using somewhat arbitrary allocation percentages for overhead costs or the so-called indirect costs. Think about when and if the cost of this additional information is beneficial? * The ABC approach will have more cost because of the cost to use the …show more content…
Evaluate this statement and discuss its merits or shortcomings. * Incremental analysis is the process of identifying relevant revenue and costs under different assumptions to make the best possible decision on how much to produce and at what price. The decision process involves choosing between alternatives based on the differences. The three major components of incremental analysis are the revenue differences (often called benefits), costs differences and cost savings difference. If one assumption produces higher incremental benefits or revenue than all others, then the right choice is to select that alternative. * Sunk costs are costs that have already been incurred and will not be changed by any decision that is made. In the decision to sell a product or process it further, prior production costs are sunk costs. These production costs have already been incurred and cannot be changed regardless of whether the company decides to sell the product as it is or process it further. Therefore, they should not be included in the analysis. * …show more content…
Because capital is usually limited in its availability, capital projects are individually evaluated using both quantitative analysis and qualitative information. Most capital budgeting analysis uses cash inflows and cash outflows rather than net income calculated using the accrual basis. Some companies simplify the cash flow calculation to net income plus depreciation and amortization. Others look more specifically at estimated cash inflows from customers, reduced costs, proceeds from the sale of assets and salvage value, and cash outflows for the capital investment, operating costs, interest, and future repairs or overhauls of
Week 4: Discussion 1
How does activity-based costing differ from the traditional costing approach? When would it give more accurate costs than traditional costing systems? * Activity based costing (ABC) is a method for assigning costs to products, services, projects, tasks, or acquisitions, based on the activities that go into them and the resources consumed by these activities. ABC contrasts with traditional costing, which sometimes assigns costs using somewhat arbitrary allocation percentages for overhead costs or the so-called indirect costs. Think about when and if the cost of this additional information is beneficial? * The ABC approach will have more cost because of the cost to use the …show more content…
Evaluate this statement and discuss its merits or shortcomings. * Incremental analysis is the process of identifying relevant revenue and costs under different assumptions to make the best possible decision on how much to produce and at what price. The decision process involves choosing between alternatives based on the differences. The three major components of incremental analysis are the revenue differences (often called benefits), costs differences and cost savings difference. If one assumption produces higher incremental benefits or revenue than all others, then the right choice is to select that alternative. * Sunk costs are costs that have already been incurred and will not be changed by any decision that is made. In the decision to sell a product or process it further, prior production costs are sunk costs. These production costs have already been incurred and cannot be changed regardless of whether the company decides to sell the product as it is or process it further. Therefore, they should not be included in the analysis. * …show more content…
Because capital is usually limited in its availability, capital projects are individually evaluated using both quantitative analysis and qualitative information. Most capital budgeting analysis uses cash inflows and cash outflows rather than net income calculated using the accrual basis. Some companies simplify the cash flow calculation to net income plus depreciation and amortization. Others look more specifically at estimated cash inflows from customers, reduced costs, proceeds from the sale of assets and salvage value, and cash outflows for the capital investment, operating costs, interest, and future repairs or overhauls of