Cofission Electronics make small electronic parts.The management accountant at Cofission,Jasmine Vake,decides to implement an activity-based costing (ABC)system.She lists the following points to support her decision:
i.The recent cost report shows that the ratio of prime costs to manufacturing overhead cost is approximately 1:3
ii.Cofission is a small company.
iii.Cofission has three product lines: basic parts (parts that are common to many products and many suppliers),customised parts (electronic parts that are highly customised to very specialised electric motors),prototypes (where Cofission Electronics need to design as well as manufacture these specialized electronic parts).iv.Cofission Electronics has recently implemented a flexible manufacturing system;this practically eliminates any setup costs;with this system,product customization takes very little additional time.You are not convinced that all of these points support Jasmine's decision.Which of the above points support the use of ABC in Cofission?
A) i,ii and iii
B) ii,iii and iv
C) i and iii
D) iii and iv

Question

Quizplus · Accepted Answer

Explanation: Point i supports ABC because a high overhead cost relative to prime costs suggests that overhead allocation is significant, which ABC can help manage. Point iii supports ABC because having multiple product lines with varying complexity and customization levels benefits from the detailed cost allocation that ABC provides.

Cofission Electronics Make Small Electronic Parts