Preview

Consolidated Electric Classification System Analysis

Good Essays
Open Document
Open Document
709 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Consolidated Electric Classification System Analysis
Nowadays every sector needs to keep important customer demands before many things in the system because if company provides meeting the demands of customer, then they turn into loyal consumers which means money. In order to balance or managing inventory system, Consolidated Electric aims maximize customer service and minimize cost of these arrangements. Firstly they totally change their on-hand system to computer for diminishing the mistakes and promoting certain and clear inventory records. Thanks to new system, new developments happened through the company’s benefit, for example data about lead time becomes crystal clear for using and calculations, balancing inventory level well provides paying less holding cost, ordering cost and shortage …show more content…
This system, ABC (Activity Based Costing), used as identifying the transactions that a CE firm does and then designate indirect costs to product. It divides inventories as a 3 groups like A, B and C. First group is A, respects the highest value parts of inventory, in this case it written as Consolidated Electric stocks almost 20,000 items and buys its inventory from around 200 different manufacturers. The price of the items they purchase range from $0.01 to several hundred dollars. The top 2,000 items account for 50% of sales and the bottom 10,000 items account for 20% of the sales leaving the remaining 8,000 items accounting for 30% of the sales. That is to say, according to ABC analysis group A would include the top 2,000 items which accounts for fifty per cent of total sales. Then we made group B to second big sale which is bottom 10,000 items that accounts for twenty per cent. Finally the part C would remain 8,000 items so we clearly identified 3 groups as what ABC analysis needs that are why we decided to use ABC analysis for Consolidated Electric.
Under favour of the method of order-point, the economic order quantity (EOQ) formula need to be used that the demand rate should be stable, repeater and recognized. Lead Time not ought to diversify, cost of item would stable without discounts, and ordering is done in batches. The EOQ model decreases the total cost of holding as well as the ordering costs. Determinants of the Reorder point are the rate of demand, the lead time, safety stock and demand or lead time

You May Also Find These Documents Helpful

  • Powerful Essays

    Activity Based Costing Method (ABC). ABC determines and allocates cost by activities a company executes. This generally happens in four steps: identify each activity and its associated costs, both total and indirect; estimated cost driver and quantity; allocation computation; and cost allocation to the respective activity. ABC refines the way indirect costs are allocated to production and focuses on the costs of each individual activity. Costs are also further assigned to each product within the activities and each activity has its own cost driver. Because of the specificity, active based costing provides a…

    • 1900 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    Activity Based Costing is a costing tool that corporations use to identify costs that are associated with the production of an item. CarryAll Company produces specialtyand standard briefcases. This company has not adopted ABC. Therefore, by not using ABC, the president believes that the producing specialty briefcases are both beneficial for the company and the president, but this is not true. Without using ABC, CarryAll only applies direct and indirect costs. The president was concerned with standard cases showing a loss while specialty was showing a profit. The company will see an overall higher profit by using ABC by $.25. (18250-18225)…

    • 303 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are selected for each activity level to link activities with costs. Thirdly, for each activity level, a cost function is defined to arithmetically describe the relationship between cost drivers and costs. Finally, a unit allocated cost is calculated for each product (Schneider, 2012).…

    • 1998 Words
    • 9 Pages
    Better Essays
  • Good Essays

    QAT 3

    • 553 Words
    • 3 Pages

    The Economic Order Quantity Model will allow an organization to determine the optimal volume of inventory to order at a given time. The EOQ model provides the most optimized approach to inventory ordering as it considers, demand, ordering cost, and holding costs; to develop the volume of inventory to be ordered to maintain to minimum annual cost (Render, 2012).…

    • 553 Words
    • 3 Pages
    Good Essays
  • Good Essays

    QAT1 Task 3 309

    • 611 Words
    • 3 Pages

    The Economic Order Quantity Model will allow an organization to determine the optimal volume of inventory to order at a given time. The EOQ model provides the most optimized approach to inventory ordering as it considers, demand, ordering cost, and holding costs; to develop the volume of inventory to be ordered to maintain to minimum annual cost (Render, 2012). Equation:…

    • 611 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Activity based costing (ABC) is an accounting method that identifies the activities a firm performs creating the real cause of the overhead, and then assigns the indirect costs of those activity only to the products that are actually demanding the activities. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.…

    • 2327 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    ABC Analysis

    • 809 Words
    • 2 Pages

    ABC Analysis for Towels More Towels and More is a small family company that is looking to expand their company. Out of the three types of stores they sell too (major retailers, specialty retailers, and gift shops), gift shops has the highest contribution margin so the CEO believes in order to have a successful expansion, they need to pursue gift shops. The marketing manager on the other hand would like to utilize the Activity Based Costing (ABC) approach to analyze the high customer distribution and costs to determine which types of companies they should pursue for expansion. In order to determine if the CEO is right in his contribution margin based assumption as well as and in an effort to allocate customer support and distribution costs, I have been hired as an consultant to prepare segment income statements that allocate based on revenues and the other on activities. Income Statements Total CompanyDepartment StoresSpecialty ShopsGift ShopsRevenues600,000 200,000 100,000 300,000 Less variable expenses Variable Production Costs180,000 100,000 20,000 60,000 Contribution Margin420,000 100,000 80,000 240,000 Less traceable fixed expenses Customer support and distribution 240,000 80,000 40,000 120,000 Production Overhead120,000 40,000 20,000 60,000 Total traceable fixed expenses360,000 120,000 60,000 180,000 Customer Segment margin60,000 (20,000)20,000 60,000 Characteristics of ABC The characteristics of companies that may benefit from an ABC allocation system are companies that have a large amount of overhead, are currently unsatisfied with their cost information system, have a wide variety of products, as well as have a wide variation in numbers of production runs and set ups, a regular change in activities over time with few corresponding ones in the accounting system and an improved computer technology (Hamzeh, 2013). TM has a rather high overhead mainly around the selling and distribution cost. After considering the overhead costs,…

    • 809 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Abc- Activity Based Costing

    • 2537 Words
    • 11 Pages

    1a) Activity based costing is a relatively new type of procedure that can be used as an inventory valuation method. The technique was developed to provide more accurate product costs. This improved accuracy is accomplished by tracing costs to products through activities. In other words, costs are traced to activities (activity costing) and then these costs are traced, in a second stage, to the products that use the activities. Another way to express the idea is to say that activities consume resources and products consume activities. Essentially, an attempt is made to treat all costs as variable, recognizing that all costs vary with something, whether it is production volume or some non-production volume related phenomenon. Both manufacturing costs and selling and administrative costs are traced to products in an ABC system. In traditional full absorption costing and direct (or variable) costing systems, indirect manufacturing costs are allocated to products on the basis of a production volume related measurement such as direct labour hours. Thus, the fundamental differences between traditional systems and activity based systems are:…

    • 2537 Words
    • 11 Pages
    Better Essays
  • Better Essays

    Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The second one that how does management use ABC information in decisions, which consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. ABC analysis along two separate dimensions, and there are ten mediating factors can guide management in determining the answers. The first five factors based on the probability, the second dimension of the model seeks to establish decisions. Finally an impartial analysis of ABC operations can tell you yes or no that using contingency analysis model. Interpreting the results: Quadrant 1(both X and Y are positive): it is recommended to use ABC. Quadrant 2 (X-positive, Y-negative): ABC is not recommended.…

    • 1403 Words
    • 5 Pages
    Better Essays
  • Good Essays

    The idea for this example is to further explain Activity Based Costing and how it can help the Ideal Manufacturing Company keep its costs at the correct level. Activity based costing is defined as “An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods..” (Investopedia, 2014)…

    • 578 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Cis 210

    • 312 Words
    • 2 Pages

    In today’s “tech” and competitive world, businesses are in transformation from manual inventory system to automated inventory system, including small businesses. Automated Inventory systems can reduce costs, retain the existing customers and gain profits. It can replace the time consuming manual process by providing more accurate data. Every business should have a proper inventory system in order to track whether the store is running out of the stock of an important item or there are some items that are obsolete. Nowadays, automated system is used almost by all the retailers, grocery stores and manufacturing companies. A good inventory control system will alert the retailer when it is time to reorder (www.barcodesinc.com). Automated inventory system will keep the competitive advantage of your company and increase the value of your business.…

    • 312 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Traditionally, companies used costing based solely on direct labor or machine hours in order to allocate indirect costs to products. A more recent approach is the Activity Based Costing (ABC) that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.…

    • 3368 Words
    • 14 Pages
    Powerful Essays
  • Powerful Essays

    Activity Based Costing 12

    • 1982 Words
    • 8 Pages

    Activity based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity. Activity based costing is a subset of activity-based management. Activity based costing is used to determine product costs and for internal decision-making and for managing activities. Traditional Absorption costing is for external financial reporting.…

    • 1982 Words
    • 8 Pages
    Powerful Essays
  • Better Essays

    EOQ is not a simple solution but an instrument, which enable the firm to determine the order size that will reduce the total inventory costs, by calculating an economic order quantity. It refers to the most favourable order volume that will result in the lowest total of order and carrying costs for an article of inventory given its expected usage, carrying costs and ordering cost. Thus, by dint of its principles, the EOQ tool can be used to form the quantity of inventory that the firm should order each month.…

    • 778 Words
    • 3 Pages
    Better Essays
  • Good Essays

    Super Bakery

    • 569 Words
    • 3 Pages

    -The ABC System makes perfect sense for Super Bakery because of their business model. They are already breaking their business up into segments for sales, manufacturing, etc. These segments could easily translate into Activity Cost Pools. From there it would be easy to breakdown those costs further to cost drivers and for cost to be assigned according to the percentage of production of each specific product. I think this system would allow them to look at all orders that they are taking in and ensure that the appropriate costs are assigned to those jobs. This would allow the management team at Super Bakery to know if certain orders are bad for…

    • 569 Words
    • 3 Pages
    Good Essays