Question -1
You have just learned more about activity based costing. What is your opinion of activity based costing? Is it better than absorption costing? Why or why not? What kind of companies or industries do you think would benefit from using activity based costing? What are some problems that companies may encounter in implementing ABC?
Question -2
Projected (also called pro-forma) financial statements are extremely important for financial planning information about the financial health of an organization. A very simple example of a projected income statement (year ended December 31st, 2015) is found below:
Revenues ($7 units × 100,000) $700,000
Variable costs ($2 × 100,000) 200,000
Contribution margin 500,000
Fixed costs 300,000
Net income $200,000
Discuss in some detail two or three key assumptions that would have gone into the projected income statement. Discuss factors such as the likelihood that the assumption might become dated, and the impact on projected income. As an example, the projection assumes that the costs of each unit will remain at $2 throughout 2015 – challenge the assumption that this is accurate. In your discussion, explore possibilities and use critical thinking to challenge assumptions. The cost of sales example above is just a start – feel free to continue with it, adding much more insight. Remember good examples get rewarded – providing examples of where a company made certain assumptions that later proved inaccurate, and the repercussions, will enrich the report immensely.