Selection of Alternative Costing Technique

Running head: MEMO 1
MEMO

MEMO 2
MEMO
To: THE MANAGEMENT OF THE COMPANY
From: Chief Accountant
Regarding: Selection of the alternative costing technique
Date: 28th April 2019
The alternative method that shall be employed in the business is an Activity-based
costing system. If the Hampshire Company was only manufacturing the stick umbrellas, the
company can use the traditional system of costing. This is the case because the indirect costs
to the items are typically produced on the basis of the volume of the sales. Since the company
will be engaged in the production of only one item this concept would be feasible from the
point of view of the company to deliver the accurate results with the use of the traditional
method of costing. Since the company has an ideology to add the collapsible umbrellas, the
manufacturing line will make it difficult for the company to produce the correct
manufacturing costs (Kallsen & Muhle‐Karbe, 2017). Henceforth the activity-based costing is
utilized as it will benefit the company by allocating the costs on the basis of the cost driver, to
allocate the indirect costs. The activity-based costing method considers all the diverse costs
that are engaged with the assembling procedure. This is particularly evident while including
two separate assembling processes. This will all the more precisely speak to the expenses and
give substantially more exact data. One can see just by taking a gander at the distinction in
item cost between the two techniques. The main characteristics of this method are that it is
used to evaluate the costs from the angle of the bifurcation. Apart from this the company also
have the option to choose from job costing or the process costing (Kaplan & Atkinson 2015).
The company must look for several factors before making the decision of whether to
apply the system or not. The factors to consider are time, cost, corporate approval, approval
from the auditors as well as the various expertise of their own field. The formal design of the
plan shall also be decided by the Hampshire company as dealing with designs is one of the
most factors. The ownership of the system will also be announced by the Hampshire
Company. Further, the information regarding the price and the historical costs must also be
taken into consideration while determining the other factors. At times the management is not
ready to accept the change and eventually, the employees are not ready to bring in the new
technology. This also involves the high risk and at that moment the objectives are not