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Jet2 Task 4

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A1. Costing Method to Activity-based Costing As Competition Bikes Inc. looks forward towards the future, understanding Activity-Based Costing and the differences from Traditional Cost accounting will help the company be more accurate and efficient which will in turn make the company more viable in their current market. This section will review what activity-based costing is and the benefits which it can have for Competition Bikes. Activity-based costing is when manufacturing overhead costs are assigned to products in a more logical manner compared to more traditional costing methods. The process is broken down by assigning costs to activities which cause real overhead and then allocates the costs of said activities to those products which are demanding of those activities (Accounting Coach, 2015). The primary difference between activity-based costing and traditional cost accounting is that the former assigns specific activities based on need whereas the latter is simply calculating machine hours and can generate potential waste to the company. Activity-based costing is more effective to companies which experience excessive overhead or an abundance of remaining parts after assembly. As provided by Competition Bikes Inc. business reports, under traditional cost accounting, they spend $6,680 more on their Titanium units whereas they could save as much by utilizing activity-based costing. Analysis of the traditional cost accounting reveals that Competition Bikes Inc. is spending $713 per unit of the Titanium frames. Assigning specific activities during production reduces the cost of each frame by $57. Activity-based costing provides more accurate resource allocation during production and ultimately saves the company money. Similar results were shown for the Carbon Lite model with a decrease of $101 per unit assembled. Further breakdown reveals that the…...

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