Overview: Classifying a company's costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost-volume-profit analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers.
Specifically, the following critical elements must be addressed:
III. Main Costing Systems-Activity-Based Costing vs. Process Costing
a) Identify the cost allocation system that would benefit this company most. Justify your response.
b) Does this cost allocation system meet management planning and control goals? Explain.
c) What are the ethical implications that should be considered with this cost allocation system?
d) Describe the ethical implications of direct costs versus indirect costs. What considerations should be made when selecting one of these two?
Guidelines for Submission: Your paper must be submitted as a 2-3 pages Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins.