Apart from the manufacturing costs there various funding which are not directly related to manufacturing of the product but they have to be accounted for. The funds spent on marketing, maintenance of equipment's and automobile expenses have to be included in the total cost of product manufacturing (Fullerton, 2014). The salaries of managers, accountants and marketer should be included in this category. My division should do a thorough analysis to estimate these costs and add them when preparing the final production cost of the product.
Activity-based costing provides a very precise technique of service or product costing, resulting in more precise pricing verdicts. It boosts understanding of overheads and cost drivers; and makes non-value adding and costly undertakings more visible (Myrelid, 2015). This will make it easy for managers to reduce or eliminate the non-value adding activities. Therefore activity-based costing will give a more realistic picture of all the cost the division will incur during product manufacturing.
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If I chose not to fully implement activity-based coasting then I would have learnt a few things that would make my division to operate more profitably. The activity-based cost has some advantages and it is not very useful for small companies where the overheads are relatively small (Oker, 2016). We can choose not to apply activity-based costing since we are dealing with a single product having small overheads which can be neglected and this will make the company realize more profit. The funds allocated for the activity based costing can be reallocated to other productive activities. However, the activity is not completely irrelevant since it gives the manager a clear picture of all the costs incurred in the production process.
Reference
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014) Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7-8), 414-428
Myrelid, A., & Olhager, J. (2015). Applying modern accounting techniques in complex manufacturing. Industrial Management & Data Systems, 115(3), 402-418.
Öker, F., & Adıgüzel, H. (2016). Time ‐ driven activity ‐ based costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), 39-56.
