Discuss the current no product-costing policy, and present an argument to top management in support of implementing a Job-Costing system

Part One

You have just been appointed as a consultant to an organization with increasing sales and expanding customer acceptance in the 25-30 year-olds clothing market.

A growing concern of top management that has been brought to your attention is as follows:

Top management has found the relationship between the reported production costs and selling prices for the various lines of clothing (simple to complex clothing) hard to match up, but are reluctant to implement a proper product costing system on the basis that the company accountant is already far too busy; “why can’t we just use the same financial reports prepared for the shareholders for which we are already paying so much money for anyway!” being their usual push-back comment.

Required:

Discuss the current no product-costing policy, and present an argument to top management in support of implementing a Job-Costing system, focusing on how such a policy will benefit the business going forward.

Part Two

BUSU PTY LTD

BUSU PTY LTD (Busu) was started by Neil ‘Red’ Williams and Jack Soso in the town of Goroka in the Eastern Highlands Province of Papua New Guinea.

Initially the business focused on small scale coffee-cherry and parchment–coffee buying activities from smallholder village growers. Eventually the business grew and became successful during times of high coffee prices.

Buoyed by these initial successes, Busu ventured into other areas of commerce and started the following subsidiary businesses:

Busu Coffee Factory – buying and processing coffee cherry into green bean (unroasted coffee bean) for sale to coffee exporters.

ABOL Electrical – electrical contracting services and sale of electrical components.

Goroka Wreckers – New and Used automotive parts and vehicle repairs.

Busu Motors – Mazda vehicle dealership, vehicle servicing, and retail fuel stations.

Markham Poultry – chicken farm supplying frozen chickens for supermarkets.

Goroka Butchers – retail fresh meat supply for the Goroka township

While encouraged by the growing success, Red and Jack have become increasingly aware and concerned by the great diversity within the many business activities of BUSU. From conversations with business associates as well as competitors recently, they have heard ‘Activity Based Costing’ being mentioned as a way to improve accuracy in costing their diversified products and services.

Required:

Explain the difference between the ‘traditional’ costing approach and Activity Based Costing (ABC), and how ABC may “improve the accuracy in costing their diversified products and services, and provide 2 examples from the many businesses of BUSU that may support the need to move to an ABC approach.

Please Note:

 You must not just provide a textbook summary of the theory and principles.

 You must read the Report Guidelines prior to writing up your report. There are strict requirements as regards page limits, formatting, and layout.

It is also very important that you be familiar with the Report Marking Guide to ensure that you have addressed the necessary components that will award marks for this assessment.

 This assessment must be submitted via Turnitin in Blackboard.

No hard-copy is required for submission.