Accounting Case Study. Business & Marketing Case Study (Case Study Sample)

Accounting Case Study
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Accounting Case Study
Q1:
Hrudicka believed that Elkay Company was in need of a new costing system since the costing system they were using was making losses for the company. The company was using the traditional standard cost system which could not properly determine the costs and consequently the pricing of their products (Taalat, 2015). This system had several problems for instance; it was ideal for tracing the direct costs of production. However, it could not measure the large sale costs and deductions involved in serving individual customers. These deductions were then pooled into large buckets and spread to customers based on a sales volume basis. It also added equipment costs to factory overhead costs and assigned them to products indiscriminately. It ranked most of the companies costs as short-term variables which were not the case. The traditional standard cost system provided managers with incorrect and irrelevant costing information for products.
Hrudicka suggested the adoption of the Activity Based Costing System (ABC) as it has several advantages over the traditional standard cost system. ABC provided managers with information that was more accurate and profitable as well actionable costing information (Taalat, 2015). The ABC was an improvement over the traditional standard cost system as it was able to assign both manufacturing and non-manufacturing costs to products while the traditional standard cost system only assigned manufacturing costs. It also does not accrue all manufacturing costs products but only specific ones, unlike the traditional standard cost system. The ABC also uses more overhead cost pools allocated to products than the traditional standard cost system.