Agricultural enterprises seeking to employ management accounting techniques Essay

Yes. I think the case study with its proposed solutions would be profitable to the agricultural enterprises seeking to employ management accounting techniques. It is because the study adopts the natural process- prowd regularity of representing merchandise and equal allotments. Activities ar the main focus on activity-based courting. The main theory in first rudiment is that command processing knock courts ar originated by an array of movements, and those different products make use of these activities in a heterogeneous way.Costing the activity is normally an in- mingled with step in the distribution of overhead represents to products, to acquire more precise product personify information. However, occasionally the activity itself is the bell object of interest. Like for voice, omnibus of a order might desire to know how much the social club spends to acquire their raw materials, as input in a sourcing judgment. The activity of acquiring the raw materials incurs costs associated with negotiating prices with suppliers, issuing purchase orders, receiving fabric, inspecting fabric, and processing payments and returns.The go to product costing are 1) Identify the cost 2) Identify the localize costs associated with the cost object 3) Identify overhead costs 4) prefer the cost allocation base for assigning overhead costs to the cost object and 5) Develop the overhead rate per unit for allocating overhead to the cost object.ABC improves steps 3 and 4 dividing large heterogeneous cost groups into multiple smaller, homogeneous cost groups. ABC so tries to choose, as the cost allocation base for each overhead cost pool, a cost driver that best takes hold the cause and effect relationship between the cost object and the incurrence of overhead costs.Usually the best cost driver is a non-financial variable. ABC can moderately turn out to be elaborate. For example, it is frequently helpful to use a two-stage allocation method whereby overhead cost s are allocated to intermediate cost groups in the first phase, and thus allocated from these intermediate cost groups to products in the second phase. Intermediate step is utilizable because it permits the introduction of multiple cost drivers for a single overhead cost item.Cost pools are usually established for each level in a pecking order of costs in an activity-based costing. The following cost hierarchy is commonly identified for manufacturing firmsUnit-level costs. These costs change in a more-or-less additive manner with the number of units produced for any given product. For example, fabric and thread are unit-level costs for a clothing manufacturer if the company would like to outgrowth production by 100%, it will need twice as much fabric and thread.Batch-level costs. These costs change in a more-or-less running(a) mode with the number of push-down stackes run. Machine setup costs are on a regular basis big bucks-level costs. The time needed to prepare a machine to run nonpareil batch of product is usually independent of the number of units in the batch the same time required in preparing the machine to run a batch of 100 units as a batch of 50 units. Consequently, batch level costs do not necessarily differ in a linear way with the number of units processed.Product-level costs These costs are regularly fixed and direct with respect to a given product. An example is the salary of a product manager with responsibility for only ace product. The product managers salary is a fixed cost to the company for a wide range of production volume levels. However, if the company removes the product totally, the product manager is not anymore needed.Facility-level costs. These costs are usually fixed and direct with respect to the facility. An example is property taxes on the facility, or the salaries of front part personnel such as the receptionist and office manager.ABC provides more exact product cost information because handed-down costing system s commonly distribute all overhead, including batch-level overhead, using an allocation base that is suitable only for unit-level costs.The traditional costing system distributes all overhead based on number of units produced. ABC method clearly identifies the costhierarchy would correct this problem.ABC could be effectively applied in merchandising and service companies as well as manufacturing firms. Although, originally ABC is attributed to manufacturing companies in the 1980s, by then hospitals were already allocating overhead costs to departments and then to patient services using methods comparable to ABC. Implementations of relatively sophisticated allocation processes were required in hospitals to comply with Medicare reimbursement rules. Other non-manufacturing industries that have benefited from ABC include financial services firms and retailers.2. If the Farm Council Case did not use exercise Based Costing, identify several dysfunctional decisions that could be made us ing traditional cost allocation. Which solution do you prefer, the initial or option solution proposed in the case?Unlike ABC, the traditional costing system distributes all overhead based on number of units produced which resulted to inappropriate identification of the cost hierarchy. Thus product costing and pricing is not at all very precise and effective.