Week 1 Homework

WEEK 1 HOMEWORK- COST MANAGEMENT

|Question: |Based on the information provided for problem 1, explain the difference between the profits obtained from the |

| |traditional system and the ABC system. Which system provides a better estimate of profitability? Why? |

|Your Answer: |Traditional system: Operating profit per batch of sugar cookies is $430.00. ABC system: Operating profit per batch|

| |of sugar cookies is $390.52. A b a Because the products do not all require the same proportionate shares of the |

| |direct labor resources, the allocation of the total overhead on that basis is not as accurate as using the ABC |

| |system. The ABC system allocates the overhead based on activity levels for the specific categories as well as |

| |activity usage by the product lines. |

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|Question: |Problem 2, essay question: What is activity-based management and how can it be used to improve the profitability |

| |of a company? |

|Your Answer: |Activity-based management is a method of management decision making that uses activity-based costing information |

| |to improve customer satisfaction and profitability. Some of the typical issues that require a refined costing |

| |system (such as ABC) are pricing and product mix decisions, cost reduction initiatives, streamlining of processes,|

| |and...