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Essay / Research Paper Abstract
This 4 page paper is written in two parts. The first part of the paper looks at how the allocation or non allocation of untraceable costs may result in a different interpretation in department performance and skew the results. The second part of the paper considers activity based costing and whether is suitable to be used for a piano manufacturing and as well as the potential problems if it is not used. The bibliography cites 4 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEquest20.rtf
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Unformatted sample text from the term paper:
may be allocated to each department, or they may be dealt with as an overhead that is not allocated. The difficult with allocating costs is knowing where to allocate
them when they cannot be traced. There is little doubt that the costs are incurred, but it can be misleading and result in erroneous assessments where untraceable costs are allocated.
In the case study by the student we can adjust the figures taking out the untraceable costs for each of the branches to consider what impact the allocations
has had on the coats To assess these we will look at the gross and net profit margins to assess the difference. Total New York Chicago Paris
Little Rock Billings (Revenue) 50,000 22,000 10,000 16,000 2,000 Traceable Consulting Costs 33,500 14,000 6,000 12,500 1,000 Non-Traceable Consulting Costs 10,000 0 0 0 0 Gross Profit on Sales 6,500
8,000 4,000 3,500 1,000 Traceable Other Costs 1,000 300 200 500 0 Non-Traceable Other Costs 2,500 1,100 500 800 100 Net Income 3,000 6,600 3,300 2,200 900 Gross profit 13.00%
36.36% 40.00% 21.88% 50.00% Net profit margin 6.00% 30.00% 33.00% 13.75% 45.00% Gross profit under the old scheme 13.00% 16.36% 20.00% 1.88% 30.00% Net profit under the old scheme
6.00% 10.00% 13.00% -6.25% 25.00% If we look at the way this is calculated it will not may any impact on the final results, the gross profit in both
approaches is 13% and the net profit in both cases is 6%. However, the impact on the offices is significant. If we look at the this the costs are
deducted from the cost of sales which increases the level of all the net and gross profits across all the offices increase, as we would expect due to lower costs.
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