Hampshire Company
A. Identify an alternative costing method that could benefit this company, and describe the main characteristics of that method
If Hampshire Company was only manufacturing stick umbrellas, I would suggest that the company uses traditional costing due to the fact that it allocates indirect costs to the items manufactured on the basis of volume. This would be much easier and less expensive to create and still give accurate results due to only one item being manufactured in mass quantities. Adding collapsible umbrellas to the manufacturing line makes the traditional costing method inadequate to correctly tell the manufacturer the true costs. Activity based costing would better suit Hampshire Company because ABC utilizes many cost drivers to allocate …show more content…
Should the Company adopt this alternative costing method?
I believe Hampshire Company should adopt the ABC method. This alternative method allocates more indirect costs, ultimately giving management a more accurate look at the costs of manufacturing. It also tells management how efficient the manufacturing process flows by determining how overhead is used. Using the ABC method Hampshire Company will obtain more accuracy about the following:
Activity Costs: This will allow management to keep costs in line with industry standards as well as help them focus on cost reduction.
Customer Profitability: It gives insight to which customers are more profitable for the company by keeping track of product returns and unusually high customer service levels. This will help management focus more on the customer who deliver the highest profit.
Distribution Cost: This tells management where the most profitable channel is and help them to focus on them while dropping unprofitable channels.
Margins: By properly allocating overhead costs management can position company resources to maximize margins.
Minimum Price: Determining the minimum price will allow the company to sell the items without losing money on the sale. This keeps the company profitable and
If Hampshire Company was only manufacturing stick umbrellas, I would suggest that the company uses traditional costing due to the fact that it allocates indirect costs to the items manufactured on the basis of volume. This would be much easier and less expensive to create and still give accurate results due to only one item being manufactured in mass quantities. Adding collapsible umbrellas to the manufacturing line makes the traditional costing method inadequate to correctly tell the manufacturer the true costs. Activity based costing would better suit Hampshire Company because ABC utilizes many cost drivers to allocate …show more content…
Should the Company adopt this alternative costing method?
I believe Hampshire Company should adopt the ABC method. This alternative method allocates more indirect costs, ultimately giving management a more accurate look at the costs of manufacturing. It also tells management how efficient the manufacturing process flows by determining how overhead is used. Using the ABC method Hampshire Company will obtain more accuracy about the following:
Activity Costs: This will allow management to keep costs in line with industry standards as well as help them focus on cost reduction.
Customer Profitability: It gives insight to which customers are more profitable for the company by keeping track of product returns and unusually high customer service levels. This will help management focus more on the customer who deliver the highest profit.
Distribution Cost: This tells management where the most profitable channel is and help them to focus on them while dropping unprofitable channels.
Margins: By properly allocating overhead costs management can position company resources to maximize margins.
Minimum Price: Determining the minimum price will allow the company to sell the items without losing money on the sale. This keeps the company profitable and