Advanced Management Accounting 6395 Case Study Assignment Case: East River Manufacturing Questions: 1. What factors led to the need for an ABC system at the Tube Shop? (Maximum 150 words) 5 Marks 2....

1. What factors led to the need for an ABC system at the Tube Shop? (Maximum 150
words)
Solution:- Before listing down the factors which led to the implementation of ABC
system in Tube Shop let us understand the meaning of activity based costing and its aspects,
ABC helps in the identification of the activities, organization and assignment of the cost to each
of the individual activities according to the actual consumption of each. Activity based costing
means if a product does not consume any activity then, that product should not absorb any part of
the overhead of that activity, if a product consume high activity, that product should absorb high
portion of the overhead of that activity. Following are the major factors which led to the
implementation of ABC at the Tube Shop:-
 Providing timely and accurate measurement of resources and their utilization i.e.
ABC will provide more detailed costing information.
 Identifying high-cost activities in the whole manufacturing process.
 Identifying those activities whose costs could be reduced by taking various
measures such as reducing the use of such activity and procuring it for low cost.
 Identify the wasteful activities and establishing priorities for improvement or
elimination those costs.
 Recording historical data in such a manner that it will help in simulating model
for scheduling and forecasting purpose.
2. How did advancement in information technology help the Tube Shop in
implementing its ABC/ABM? Explain through providing an example from the case.
Solution: - Advent in technology has helped Tube shop to great extent in implementing
ABC/ABM in much better way, in the absence of information technology it would be difficult to
implement and maintain ABC/ABM system of costing. Information technology has improved the
level of efficiency in working by automating various functions. Information technology has
helped the Tube shop in the following manner to implement ABC/ABM:-
Automated collection of activity data during production by means of the integrated shop-
floor control system.
Work cell schedulers automatically collect feedback on process activities and compare
this data with information generated by the computer-controlled production scheduler, and this
computer-controlled production scheduler maintains data on each product’s requirement, this
will help in getting the...