Importance of Activity Based Costing - UAE Trekker LLC

Running head: IMPORTANCE OF ACTIVITY BASED COSTING
IMPORTANCE OF ACTIVITY BASED COSTING
Name of the Student
Name of the University
Author’s Note:

IMPORTANCE OF ACTIVITY BASED COSTING1
Executive Summary
The report takes the example of UAE Trekker LLC that produces a broad range of products
where overheads play an important role. The Company, to improve its profitability and to make a
proper decision regarding the manufacturing process switches from a traditional approach to the
ABC approach. The report also studies about the reasons behind the changes in the cost per unit
of the goods under traditional costing method to ABC. In addition, implications of the potential
cost management, including the effects on pricing and profitability of switching from traditional
absorption costing to Activity-based costing has been discussed. Moreover, the reason behind
selecting the ABC system has been discussed in the report and how it helps the Company to
make their decision in an effective way to achieve the goals and better opportunities for their
production. Lastly, the study covers the risk and difficulty related to the ABC system into a
business and the steps towards eliminating such risks.

IMPORTANCE OF ACTIVITY BASED COSTING2
“I ............ declare that I am the sole author of this assignment and the work is a result of my
own investigations, except where otherwise stated. All references have been duly cited”.

IMPORTANCE OF ACTIVITY BASED COSTING3
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
a) Calculation of cost per unit using traditional method...........................................................3
a) Calculation of cost per unit using ABC method...................................................................4
b) Reasons for the changes in cost per unit when the costing system are changed from
traditional absorption costing to ABC.........................................................................................4
c) Potential cost management implications of switching to an ABC system...........................5
d) Effects on pricing and product profitability from switching from traditional absorption
costing to an ABC system............................................................................................................6
e) Steps and possible pitfalls to avoid when introducing an ABC system into a business.......6
Conclusion.......................................................................................................................................7
References and bibliography...........................................................................................................8
Appendix..........................................................................................................................................9