At a Recent Professional Meeting,two Accountants Discussed Product-Costing Problems in Their

question 6

Essay

At a recent professional meeting,two accountants discussed product-costing problems in their respective companies.Both accountants are familiar with ABC systems but neither of their firms utilise this method.Accountant A reported that part of the problem in product costing in his firm is that there are major differences between product lines as to volume of units,utilisation of various activities,quality assurance requirements established by customers and size of the products.Accountant B noted that in her firm,which produces consumer products,all products undergo the same basic production processes and in the same sequence,but in an increasing variety of colours and packaging modes.Both accountants are worried about the potential distortion of product costs under their conventional product costing systems.Which accountant should be more concerned about the potential distortion? Explain.

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Definitions:

Accounts Receivable

Accounts receivable refers to the amount of money that customers owe to a company for goods or services that have been delivered but not yet paid for.

Cash

Liquid currency and assets readily convertible into cash, used to fund day-to-day operations and transactions.

Liquidity

A measure of how easily assets can be converted into cash without losing value.

Obligations

Responsibilities or duties bound by law or contract that one party owes another, including the repayment of debts or fulfilling contractual agreements.