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1. the most time and effort verifying the accuracy of records for B items. 2. more in supplier development for A items. 3. extra care in forecasting for C items. 4. more in inventory security for C items.
Right answer is option 2, more in supplier development for A items, because more focus is on 20% of high value items ======================
Hello Team,
Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs compared to conventional costing.
CIMA (Chartered Institute of Management Accountants) defines ABC as an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs.
However, as the percentages of indirect or overhead costs rose, this technique became increasingly inaccurate, because indirect costs were not caused equally by all products. For example, one product might take more time in one expensive machine than another product—but since the amount of direct labor and materials might be the same, additional cost for use of the machine is not being recognized when the same broad 'on-cost' percentage is added to all products. Consequently, when multiple products share common costs, there is a danger of one product subsidizing another.
Regards,
Saiyid
my choice is Option" A " .
I apologize for the answer, I leave the answer to experts specialists in this field, this is not my area.
Option "2" looks more suitable..............................
It is based on 20% of products gives 80% of Turnover.
Option 2) is answer +++++++more in supplier development for A items.
Option 2 looks more accurate to your question !
Thank You
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