Alternative Costing Technique for Hampshire Company Memo

This report, prepared as part of an ACC 550 assignment, analyzes the selection of an appropriate costing technique for the Hampshire Company, a company involved in umbrella manufacturing. The report presents two alternative costing methods: Activity-Based Costing (ABC) and Standard Costing. The memo to management argues for the adoption of ABC, highlighting its benefits in terms of accuracy and reliability, especially when the company expands its product line. The report considers various factors, including time, cost, and management acceptance, and also addresses the risks and complexities associated with the chosen costing method. It provides a detailed comparison between ABC and Standard Costing, emphasizing the ability of ABC to provide more realistic product costs and its role in identifying cost drivers. The report concludes with a discussion of how ABC can help the company manage overhead expenses and improve overall performance. References to relevant literature are included.

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

MEMO 3
transparent. Therefore Hampshire must ensure that the management accepts the project with
ease and they shall be given proper training of the system which is going to be installed in
order to have the consent and the management can derive positive fruits after the
implementation of the technology. The risks and the complexities must also be considered
while making the decision of whether the company wants to sell the umbrellas of one
category or both (Cooper, 2017). The company shall adopt this costing method as it's going to
benefit the company from various perspectives. ABC costing will help the Hampshire
Company to bring in more accuracy and the reliability in the costs. The individual drivers are
available while calculating the costs of both the umbrellas. It concentrates on circumstances
and logical results relationship in the cost incurrence.
It perceives that it is exercises which cause costs, not items and it is an item which
devours exercises (Nas, 2016). The costs of the Hampshire are bifurcated on the basis of
machine hours, inspection, setups, shipments, production runs, and purchase orders. In
cutting edge fabricating condition and innovation where bolster capacities overheads
comprise a huge offer of all-out costs, ABC gives progressively sensible item costs (Gurcanli,
Bilir & Sevim, 2015). Therefore the Hampshire Company shall be aware of the fact as to
what this method is capable of. ABC has the capacity to settle down Hampshire Company
and it also distinguishes the genuine idea of cost conduct and aides in decreasing expenses
and recognizing exercises which don't increase the value of the item. With ABC,
administrators can control many fixed overhead expenses by practicing more command over
the exercises which have caused these fixed overhead expenses and gives the new shape to
the Hampshire Company. This will not only improve the performance of the company but it
will also ABC establishes the cost driver rates and crucial data and the information on
exchange volumes which are exceptionally valuable to the management of the company for
determination of the costs and their associated key drivers (Dale & Plunkett, 2017).

MEMO 4
References
Cooper, R. (2017). Target costing and value engineering. Routledge.
Dale, B. G., & Plunkett, J. J. (2017). Quality costing. Routledge.
Gurcanli, G. E., Bilir, S., & Sevim, M. (2015). Activity-based risk assessment and safety cost
estimation for residential building construction projects. Safety science, 80, 1-12.
Kallsen, J., & Muhle‐Karbe, J. (2017). The general structure of optimal investment and
consumption with small transaction costs. Mathematical Finance, 27(3), 659-703.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Nas, T. F. (2016). Cost-benefit analysis: Theory and application. Lexington Books.