TASK 4

Competition Bikes

Competition Bikes

Introduction

The study is related to the financial performance of Competition Bikes in context of CarbonLite and the Titanium frame bikes. The Competition Bikes Incorporation is the manufacturer of sports bikes for professional and other highly accomplished riders who compete in triathlons, biathlons and bike races. The company is known for the durability, reliability and high quality vehicles due to CarbonLite and the Titanium models. This study evaluates the use of a specific costing method and cost-volume profits.

Activity Based Costing

Activity Based Costing is an approach to costing, which has been gaining acceptance over the past years. It is claimed to be a superior costing system to the older traditional job costing method, both as a method of costing output and as a means of cost control. Competition Bikes Inc. should change its accounting system to activity system because it provides a more accurate picture of how indirect costs should be allocated to a product which is more beneficial to organizations with multiple products. Competition Bikes have a high percentage of their product costs as indirect costs, and Activity Based Costing is beneficial to organizations whose products use overhead activities in different ways or amounts for the same product. The Total production costs for Titanium under the traditional method is 641,320 while it decreases to 590,715. The situation for Carbon Lite is different as the production cost increases for it in ABC system, but the production and sales unit are more for Titanium; therefore, it should be focused.

In addition to this, before listing the advantages of ABC for the Competition Bikes, it is important to point out in what kind of business is appropriate to apply this system:

Those in which the indirect costs form a significant part of total costs.

Companies like Competition Bikes in which there was an increase, year after year in indirect costs.

Other companies with high volume on fixed costs.

In which indirect costs are charged to the product by an arbitrary basis.

Companies in which the allocation of indirect costs to individual products is not really proportional to volume production of products.

The companies like Competition Bikes immersed in an environment of strong competition.

Companies in which there are a variety of products and production processes, in which also the production volumes vary considerably.

Companies with great diversity of structures of support given to the products.

Companies like Competition Bikes with a high level of coincidence of processes or activities between the products.

Companies like Competition Bikes in which there is a large number of channels of distribution and causing buyers need to undertake activities of sales are very different.

Business shows that there is dissatisfaction with the existing cost system.

Business has been chosen to compete as the leadership in costs.

On the advantages of ABC are varied the arguments presented in the literature reviewed, the most important are the following.

 

Advantages

The advantages of ABC for the Competition Bikes are that the Competition Bikes with multiple products can observe a completely different organization of the costs of their products; this new ...