Sunflower

At this clip, we are using density speak toing besprinkle; it is not suitable with the large manufacturer as buy the farm company any more. Absorption make uping system assign the all told command processing operating expense time by volume of intersection point, it is suitable with the company has humiliated overhead toll and few output line. However, our company is multinational company which sales build place across a number of countries. Therefore, we have to pay many non-manufacturing cost such(prenominal) as grocerying cost, research and exploitation product, research market and warranty etcetera According submerging cost system, these cost give be not included in product cost and that bequeath make our company set impoverished price of product. In addition, our company has many product lines and it pull up stakes be produced at different quantity, it also leads to cost subsidization, almost products will be set at under cost and the other will be set at over cost. For example, we produced 1000 social unit spot switch and 500 units lamp, the overhead of this month is $1500 dollar, applying absorption costing system, the overhead cost of separately products is $1 dollar. In fact, producing 500 lamps cost more overhead than producing 1000 power switch. Consequently, when we use this costing system, the overhead cost will be exactly its actual cost.

For this reason, I imply that we should apply first principle costing system; it can supporter overcome those shortcomings of absorption costing system. The first and most outstanding advantage of first rudiment costing system is the accuracy in the process of costing with regards to the product line, it reduce prices of produ! cts that use less(prenominal) activity resources and increase prices of products that clear more of our company activity resources. We will allocate all the relevant cost of product such as development cost, marketing cost, overhead cost (cost driver). I will take an example from SMA course book, scalawag 67 to explain the advantages of alphabet costing system.

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