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),customized parts (electronic parts that are highly customized to very specialized 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 contradict Jasmine's decision?
A) i and ii
B) ii
C) i.ii and iv
D) ii and iv

Question

Quizplus · Accepted Answer

Point iv contradicts Jasmine's decision to implement an activity-based costing (ABC) system because the implementation of a flexible manufacturing system eliminates any setup costs, which is one of the main drivers of cost allocation in an ABC system. Instead, a process costing system or a standard costing system may be more appropriate for Cofission Electronics given their recent implementation of a flexible manufacturing system. Point ii does not necessarily contradict Jasmine's decision as ABC systems can be implemented in small companies as well. Points i and iii are neutral and do not contradict or support Jasmine's decision.

Cofission Electronics Make Small Electronic Parts