country
$20 Bonus + 25% OFF
Securing Higher Grades Costing Your Pocket? Book Your Assignment at The Lowest Price Now!

Question:

How manufacturing overhead costs of a company increased as a proportion of the total costs and diversity of product-line increased? Explain.

 

Answer:

According to Cooper and Kaplan (1988), as the manufacturing overhead costs of a company increased as a proportion of the total costs and diversity of product-line increased, the assumptions of traditional cost system gets violated. They indicated that although, support department costs have been considered fixed but they actually varied and were driven by product-line diversity and complexities of activities (operating) like inspection, handling, set-up etc. This complexity can be handled by the support departments when they are larger and sophisticated. Since, low-volume products associates more with such transactions per unit than the high-volume products, it can result in cross-subsidization that is the high-volume products can be allocated more overhead by subsidizing the low-volume ones. Outputs of support depaartments can increase as most of it involves human activities and eventually, the maximum output of department is reached and further personnel are requested. As this request rises with an increase in output, the support department grows intermittently.

The cost of complexity concept is not used in the traditional concept of cost systems because both are different methods for allocating overhead costs to products. The traditional cost accounting model or system puzzles the underlying relationship between the ranges of different products produced and the size or magnitude of support departments. Cooper and Kaplan argued that the traditional cost systems used volume related bases in order to allocate manufacturing overhead and hence led to material misreporting of the product costs. Also, as the cost of support departments is treated as fixed, this concept makes it problematic to realize that these costs are varying systematically (Cooper & Kaplan, 1988). 

As the traditional cost accounting systems were not considered accurate because they may result in over-costing or under-costing, Cooper and Kaplan decided to aware people of a comprehensive cost system so that it can incorporate even the long-term variable costs of marketing and manufacturing of every products or product-line, thereby resulting in a much efficient basis for managerial decision-making on discontinuing, pricing, reengineering and introducing product lines. The cost system can also facilitate in the smooth running of a business, hence generating sustainable advantages for the business. Previously, managers in companies made significant decisions on pricing and product mix etc on the basis of distorted information on cost and alternative methods rarely existed to alert the managers about the flaw in cost information (Maher, 2005). Another reason behind this article was that previously management accounting mainly concentrated on cost information for making short-run decisions and the most relevant aspect of decision on products got avoided (Don & Maryanne, 2006). The thinking of people regarding the cost behavior needed to be changed as it was ineffective and hence, two relevant changes needed to be made through this article. Firstly, the cost allocation from the pool of costs to products was required to be achieved as overhead costs were driven by production complexities and not volume of production and secondly, the overhead costs varied with variations in production complexities but these variations were actually intermittent in nature. Hence, to sum up, Cooper and Kaplan wrote this article so that the flaws of the traditional accounting system could be neglected and the benefits of a comprehensive cost system could be informed to the people in order to facilitate better decision making in their processes. 

is very important in every business whether it be related to pricing, product-mix etc. Accounting managers were making a mistake in their decisions as they relied on the distorted cost information and this paper successfully fulfills its objective in informing people about the relevance of a comprehensive cost system. People must read the paper because it not only comprises of information on the benefits of a comprehensive cost accounting system but also comprises of the flaws that are present in the traditional system of cost accounting (Drury, 2011).

 

Readers can learn that in the present scenario, marketing channels and product lines have become proliferated. Direct labor represents only a small portion of corporate costs whereas marketing expenses, distribution expenses etc have risen but still many of the companies allocate these increasing overhead by their decreasing base of direct labor. These simple approaches are no longer required and can prove dangerous especially in this era of global competition and innovative production technologies (Lanen et. al, 2008). As a matter of fact, people were aware that decision-making was a key factor of the success of a business and many managers were even aware that their systems of accounting distorted product costs but they were unaware of the impact of the decisions they would be making (Horngren, 2011). Hence, an effective system was urgently needed so that the product costs could be measured and could also be assigned to product the costs of complexities.

 

References     

Cooper, Robin & Kaplan, Robert S. “How Cost Accounting Distorts Product Costs” Management Accounting 69(1988): 10. Print 

Don R. H & Maryanne, M. M. Cost Management Accounting & Control. : Thomas South-Western, 2006. Print

Drury, C. Cost and management accounting. Andover, Hampshire, UK: South-Western Cengage Learning, 2011. Print

Horngren, C. Cost accounting. Frenchs Forest, N.S.W: Pearson Australia, 2011. Print

Lanen, W. N., Anderson, S & Maher, M. W. Fundamentals of cost accounting. NY: Hang Loose press, 2008. Print

Maher, L.  Fundamentals of Cost Accounting. McGraw-Hill, 2005. Print 

OR

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2017). Costs And Diversity Of Product. Retrieved from https://myassignmenthelp.com/free-samples/costs-and-diversity-of-product.

"Costs And Diversity Of Product." My Assignment Help, 2017, https://myassignmenthelp.com/free-samples/costs-and-diversity-of-product.

My Assignment Help (2017) Costs And Diversity Of Product [Online]. Available from: https://myassignmenthelp.com/free-samples/costs-and-diversity-of-product
[Accessed 29 May 2020].

My Assignment Help. 'Costs And Diversity Of Product' (My Assignment Help, 2017) <https://myassignmenthelp.com/free-samples/costs-and-diversity-of-product> accessed 29 May 2020.

My Assignment Help. Costs And Diversity Of Product [Internet]. My Assignment Help. 2017 [cited 29 May 2020]. Available from: https://myassignmenthelp.com/free-samples/costs-and-diversity-of-product.


MyAssignmenthelp.com has become one of the leading assignment help provider in New York City and Boston. We provide top class auditing assignment help. Not only auditing, but we also cover more than 100 subjects and our writers deal with all types of assignments with utmost expertise. To make writing process faster and accurate, we have segmented our assignment experts' teams as per their expertise on writing different types of assignments. We guaranteed that students who buy our assignment online get solutions worth their investment.

Latest Accounting Samples

BUS103 Accounting For Managers : Team Assignment

Download : 0 | Pages : 4

Answer: Introduction: Different stores of JB Hi-Fi offer various types of electronic products; like leading brands of computers, TVs, Tablets, Speakers, Cameras, HI FI, Car Sound System, Home Theatre Sound System, Portable Audio systems and others. In addition, the company also offers various ranges of DVDs, games, Blu Rays, TV shows and others at cheap prices (jbhifi.com.au 2018). JB Hi-Fi measures their revenue based on fair value of the r...

Read More arrow Tags: Australia Robertson Management Dispute Management  University of New South Wales 

HA 3011 Advanced Financial Accounting Statements

Download : 0 | Pages : 10
  • Course Code: HA 3011
  • University: Holmes Institute
  • Country: Australia

Answer: Introduction: Bell Financial Group Limited Company has been given to make the analysis of the annual report of the company. The company is Australia based and listed on the stock exchange of Australia. The company is in into the business of broking, financial and advisory related services. For the purpose of the analysis of the impairment testing the company’s annual report of the company for the financial year ending 2016 has b...

Read More arrow

BAO3309 Advanced Financial Accounting 2

Download : 0 | Pages : 15
  • Course Code: BAO3309
  • University: Victoria University
  • Country: Australia

Answer: Introduction  This study deals with understanding the role of International Integrated Reporting Committee by referring to the IIRC websites as well as relevant accounting literature. In the next segment, explanation had been done to understand the potential roles of integrated reporting with regard to stakeholder engagement, comparability of reporting, quality of reporting, usefulness of reporting and users of reporting. The curre...

Read More arrow

HA 3011 Advanced Financial Accounting Assessment

Download : 0 | Pages : 10

Answer: Part A Requirement I In Toll Holdings Limited, impairment needs to be done when the market price of an asset is less than the value recorded in the balance sheet. As per the latest financial statements, one can observe that the corporation has used their business goodwill for the purpose to test impairment (competitiontribunal.gov.au, 2018). It needs to be mentioned that Toll Holdings Limited has complies with the require...

Read More arrow

AC4410 Accounting And Finance 2

Download : 1 | Pages : 10
  • Course Code: AC4410
  • University: University Of Central Lancashire
  • Country: United Kingdom

Answer: Introduction: Sky plc is a European media and telecommunication company which is situated in London, UK. The key products of the company are direct broadcast satellite, broadband, telephony services, broadcasting, pay television etc. the total revenue of the company was € 12.916 billion in 2017. Currently, 21 million subscribers are entertained by the company and 30,000 people are employed by the company (Home, 2018). The company...

Read More arrow
Next
watch

Save Time & improve Grade

Just share Requriment and get customize Solution.

question
We will use e-mail only for:

arrow Communication regarding your orders

arrow To send you invoices, and other billing info

arrow To provide you with information of offers and other benefits

1,322,856

Orders

4.9/5

Overall Rating

5,075

Experts

Our Amazing Features

delivery

On Time Delivery

Our writers make sure that all orders are submitted, prior to the deadline.

work

Plagiarism Free Work

Using reliable plagiarism detection software, Turnitin.com.We only provide customized 100 percent original papers.

time

24 X 7 Live Help

Feel free to contact our assignment writing services any time via phone, email or live chat.

subject

Services For All Subjects

Our writers can provide you professional writing assistance on any subject at any level.

price

Best Price Guarantee

Our best price guarantee ensures that the features we offer cannot be matched by any of the competitors.

Our Experts

Assignment writing guide
student rating student rating student rating student rating student rating 5/5

154 Order Completed

97% Response Time

Harold Alderete

PhD in Economics

London, United Kingdom

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

2830 Order Completed

97% Response Time

Leroy Bicknell

MBA in Marketing

London, United Kingdom

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

1758 Order Completed

99% Response Time

William Martinez

MS in Biology

Washington, United States

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

93 Order Completed

100% Response Time

Jackson Mitchell

MiM (Masters in Management) in Supply Chain Management

New Jersey, United States

Hire Me

FREE Tools

plagiarism

Plagiarism Checker

Get all your documents checked for plagiarism or duplicacy with us.

essay

Essay Typer

Get different kinds of essays typed in minutes with clicks.

edit

GPA Calculator

Calculate your semester grades and cumulative GPa with our GPA Calculator.

referencing

Chemical Equation Balancer

Balance any chemical equation in minutes just by entering the formula.

calculator

Word Counter & Page Calculator

Calculate the number of words and number of pages of all your academic documents.

Refer Just 5 Friends to Earn More than $2000

Check your estimated earning as per your ability

1

1

1

Your Approx Earning

Live Review

Our Mission Client Satisfaction

It was a good assignment, everything was according to details. it was of high quality. I got HD in this assignment

flag

User Id: 306529 - 29 May 2020

Australia

student rating student rating student rating student rating student rating

superb work done within the given time limit. really amazing expert who has done my assignment.

flag

User Id: 430182 - 29 May 2020

Australia

student rating student rating student rating student rating student rating

good i am happy for your work , i hope i will submit all my assigmnets to you people

flag

User Id: 412937 - 29 May 2020

Australia

student rating student rating student rating student rating student rating

Great work. I really do appreciate the professionalism and competence of the expert who completed my work. They did a very good job. English was prefect and content well presented. Thank you.

flag

User Id: 427917 - 29 May 2020

Australia

student rating student rating student rating student rating student rating
callback request mobile
Have any Query?