Task 4

Task 4

Introduction

The company Competition Bikes Inc. operates in the bikes industry and specializes in providing professional bicycles to the racers. More than half of the racers choose bikes manufactured by the company and the serves approximately ten percent to the new racers i.e. participating in the race for the very first time. The company's headquarter is located in the San Diego, California.

The report is written with an aim to analyze the costing systems and the break-even point analysis. The report entails a bird view of the potential costing systems and their direct impact, the summary of the analysis of the ABC method adopted by the company and the break-even analysis.

A Bird View of the Costing Systems

Costing systems are the systems that are placed in organizations in order to aid them primarily in tracing costs. They provide management information about the operational performance of an organization. An appropriate costing system should be chosen by the firm so as to optimize their operational efficiency levels and reap out the benefits that are offered by such decision. Various firms, based on their industry practices, company structure, laws & regulations, etc. use various costing systems such as Activity-Based Costing (ABC) system, Traditional costing and variable costing (Hughes et. al, 2003) Companies tend to use different costing systems. One of the primary reasons is to attain advantages that every different costing system provides to an organization and to achieve its cost-effectiveness goal. Management tends to use costing systems not only to identify or trace the costs and activities associated with it but also providing them information in order to assist in decision making. Different sort of information produced by various costing-systems based on its scope & nature can conflict with the management for a particular costing systems. Management can pursue a costing system that can generate information about its performance measurement, revenue augmentation and cost-effectiveness goal. Other factors that can favor in opting a specific costing model can be production processes complexity, operational capacity and its frequency, and nature & composition of competition in the industry (Hughes et. al, 2003) Activity Based Costing (ABC) system is a simply a costing system that assigns costs to various activities that business undertakes in its course of business (Blocher et. al, 2006). It is one of the renowned, recent and effective cost- accounting methods. It has gained importance because of cost classification and identification ability. The activity based costing method allows the cost-accountants and other managers to correctly identify the resource costs allocated to every activity that is undertaken by the company in order to produce its offerings. Traditional costing system allows management to treat overhead costs as a part of product cost including direct material and labor. Cost allocation is one of the important activities in such costing method. Variable costing system excludes the fixed overhead and general administrative & selling expenses from the product cost. The cost base in such cost method is based on all variable costs used to produce such a ...