Strategy and Organizational Structure Accounting

Question: Discuss about the Strategy and Organizational Structure Accounting. Answer: Introduction In this report, an attempt is made to apply the concept of Activity Based Costing system to solve th4 requirement of the case. In this, case the Genre Company is a manufacturer of two types of products advanced and basic. The aim of this report is to calculate the overhead rates using traditional methods. The product cost per unit and the price to be charged is also calculated in the report. Further, the cost per activity pool and the cost per unit of the products using ABC system is also used. Lastly in the report the benefits of the Activity Based costing System is also discussed. Analysis of the cost of the product The above tables shows the production costs per unit for the basic as well as advanced products as it is calculated by using traditional costing method and activity-based costing methods (Shields, 2013). In other words, the above calculated costs highlight the problems that take place because of improper overhead calculation. This is the reason why basic product costs arrives at $ 396.40 by using traditional costing method that is much lower as compared from the actual costs amounting to $ 504.30. This reveals the fact that the cost of products is understated. Advanced product, on the other hand is overstated than its actual cost by using activity-based costing method that arrives at $ 181.34 that is lower as compared under traditional costing method amounting to $ 202.92 (Krumwiede, 2014). Benefits of Activity Based Costing ABC (Activity-Based Costing) Method proves to be one of the vital overhead allocation methods that are used in and across the world (Gosselin, 2015). Addition to that, this method allocates the manufacturing overheads aligning with different product lines in a precise way after comparing it with traditional costing method. ABC Method involves the overhead costs that is classified under conducting activities whereby there is incur of costs by the individuals. Therefore, allocation of costs of products will be as per the proportions whereby products are connected aligning with specified activities (Shields, 2013). Some of the benefits of Activity-based costing methods are listed below: Accurate Costing- Activity-based costing method majorly focus on understanding the concept of cause and effects of cost whereby it allocates the overheads in an effective way. This method help in determining the total production cost in an accurate way after comparing it with traditional method of costing (Drury, 2016). Proper Computation of Selling Prices- As far as multi-products is concerned; it becomes difficult in predicting the selling price for each product. This is because of presence of many common overhead costs at the same time. ABC method lf costing help in allocating these types of common overhead from other products in accurate proportions as well as assist ways for computing the selling price in proper manner (Cooper and Kaplan, 2013). Control of Overheads- Activity-based costing will distribute the overhead allocation into various products or departments. In other words, this method is used by the departmental managers for controlling the overhead costs in the most effective way (Brimson, 2015). In this particular case, Genre Company involves in allocating the total overhead cost in terms of direct labor hours by using traditional costing method (Shields, 2013). This is where individual costs do not get related with the direct labor hours. In this, it is mentioned that production costs of basic as well as advanced products have less costs than the other method of costing. This will lead to scenario when management find ways in setting higher selling prices especially for advanced product. Therefore, in case the competitors use the products for selling at low rates then it will give rise to competition to the company (Gosselin, 2015). It is important to understand the fact that companies adopting traditional method will be able to sell their products at lower costs as well as compete with their competitors. On the contrary, Genre Company uses Activity-based costing that will help in reducing the cost of the product by way of cost allocation based on related activities as well as determining proper selling price. Therefore, Activity-based costing is beneficial for Genre Company as they can sell their products at lower rates as well as involve in intense competition at the same time (Shields, 2013). Conclusion The above report shows the calculation of cost under both tradition and ABC costing system. Based on the above discussion and understanding the benefits of ABC system it can be concluded ABC system is better than the traditional costing system. 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