THE CHOSEN COMPANY IS CAMPBELL SOUP (V8 JUICE)
PLEASE USE ACADEMIC REFERENCES
You need to design a costing system for the product category of your organisation. The costing system must be based on the principles of Activity Based Costing (ABC). Assume that your organisation has not adopted ABC and currently uses a conventional costing system. Your team should present:
1. An outline of ABC and how it differs to traditional costing systems.
2. An outline of the benefits and disadvantages of ABC for your specific organisation.
3. Presentation of a product costing system that has been tailored to cost products in the product category you have selected. The system must incorporate overhead allocation based on ABC principles. The system only needs to incorporate product related costs (period costs can be ignored) and the chosen costs must relate to the value chain specified in part 1 of this assignment. You need to:
1. Identify all relevant direct and indirect costs associated with the product category.
2. Identify the relevant activity cost pools (we recommend no more than 6 activity cost pools).
3. Identify cost drivers for each activity cost pool.
4. Classify whether the activity cost pools are at the unit, batch, product or facility level (cost hierarchy).
The report should explain the rationale for identifying and classifying the direct and indirect costs, activity cost pools, cost drivers and cost hierarchy classification.
Product Costing
Show how your costing model can be used to cost products for your business. Select one product as an example from the product category of your organisation and estimate the full product cost (direct materials, direct labour, and overheads). All estimations and assumptions for direct costs, indirect costs and activity drivers must be clearly justified and referenced. Direct costs can be estimated for the selected product only. Indirect costs and activity rates should be estimated for all products in the product category, and then allocated to the example product, based on estimated overhead driver usage. Supporting cost data, assumptions, tables and diagrams etc. may be shown in appendices.
You can make the following assumptions:
1. All products in your product category are produced in a single factory in Australia.
2. Production is for the Australian market only.
Some cost information is publicly available, while other costs will need to be estimated based on available information and realistic assumptions. For example:
1. Direct materials: If you are costing a chocolate bar, then the main ingredients can be identified and costed (e.g. cost of sugar). Remember, the costs are for the organisation, not what you would pay at the supermarket!
2. Direct labour: Identify the types of labour likely to be involved in manufacturing the product. Wages for different job types can be located on the Internet.
3. Overheads: Some costs will be publicly available (e.g. electricity rates) while other costs will have to be estimated based on assumptions. Some overheads may be estimated from annual report information (for instance, using a percentage estimate of how much of the cost relates to your product category, and how much would relate to the Australian market). Market information may be available on the Internet or databases such as IBIS World or MarketLine Advantage