Truth and Consquence

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Kenco Engineering Corporation
Strategy-Driven Costing & Lean Management
Kenco Engineering Corporation
Strategy-Driven Costing & Lean Management

Question 1)
Generally Accepted Accounting Principles require that product costs include all manufacturing costs and only manufacturing costs. Activity-based costing usually does not include all manufacturing costs and will often include nonmanufacturing costs. Therefore, ABC is not currently acceptable under GAAP. Kenco’s costing system is preferable under GAAP because it includes all manufacturing costs, and only manufacturing costs. Kenco currently uses one cost driver: a product’s consumption of TCing machine time and allocates manufacturing costs based on the use of that strategic constraint. ABC measures the cost and performance of activities, resources, and cost objects. The resources are assigned to activities and the activities are assigned to cost objects based on their connection and use to that object. ABC serves as a decision making tool; it allows companies to improve business performance through increased efficiency and reduction of costs. ABC identifies the key activities performed in all stages of delivering the product or service to the customer, and these activities are the ones that consume the resource and create the product.

Traditional performance measures are based on financial results derived from the general ledger, budget, variance reports, and standard costing systems. Kenco uses a standard costing system that utilizes one cost driver. Kenco’s costing systems includes manufacturing costs such as cost of material, allocated cell cost, conversion cost in calculation of product costs. Kenco uses only one driver cost, which is manufacturing cycle time. Traditional cost accounting techniques for capturing cost are flawed; hence, allocation methods do not reflect the true cost across the operations of a business. As a result, operational management tends to ignore cost...
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