(i) Degeneracy
This is a term in transportation and assignment which refers to a situation where the
number of occupied cells is less than n + m – 1 where n is the number of rows and
m is the number of columns.
(ii) Pure Strategy
In a game matrix represent the row and column whose intersection is the saddle
point. In a pure strategy player X will play one row all of the time and player Y will
also play one of his column all the time.
(iii) Mixed Strategy
Consist of a probability mixture of more than one strategy. The objective in a
mixed strategy involves preparing the opponent from knowing which strategy is
used on a given play. This is accomplished by selecting the strategy to be used for
each play at random, according to probabilities that can be computed from the game
matrix.
(iv) Dominance rule
This rule states that there are strategies that a given player would never play,
irrespective of what the other player does. The strategies which are always avoided
are said to be dominated by the other strategies and can be left out from the
analysis.
Kavungya answered the question on May 7, 2021 at 05:23
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Industrial Chemical Ltd. (ICL) produces chemical Y. the standard ingredients of 1 kilogram
of Y are:
0.65 kilograms of ingredient F @ Sh. 40 per Kg
0.30 kilograms...
(Solved)
Industrial Chemical Ltd. (ICL) produces chemical Y. the standard ingredients of 1 kilogram
of Y are:
0.65 kilograms of ingredient F @ Sh. 40 per Kg
0.30 kilograms of ingredient D @ Sh. 60 per Kg.
0.20 kilograms of ingredient N @ Sh. 25 per Kg.
The following additional information is provided:
1. Production of 4,000 kilograms of chemical Y was budgeted for October 2004.
2. The production of chemical Y is entirely automated and production costs attributed to
its production comprise only direct materials and overheads.
3. ICL‟s production process works on a just-in-time (JIT) inventory system and
no ingredients or inventories of chemical Y are held.
4. Overheads budgeted for the production of Y in the month of October 2004 were as
follows:
5. In October 2004, 4,200 kilograms of Y were produced and the cost details were as
follows:
Materials used
2,840 kilograms of F, 1,210 kilograms of D and 860 kilograms of N at a total cost of
Sh. 203,800.
Actual overhead costs
12 supply deliveries at a cost of Sh.48,000 and 38 customer dispatches at a cost of
Sh. 78,000 were made.
6. ICL‟s budget committee met recently to discuss the preparation of the cost
control report for October 2004 and the following discussion took place:
Chief accountant: “the overheads do not vary directly worth output and
are therefore by definition „fixed‟. They should be analyzed and reported
accordingly”.
Management accountant: “the overheads do not vary with output, but they
are certainly not fixed. They should be analyzed and reported on an activity based
basis.”
Required:
Having regard to this discussion,
a) Prepare a variance analysis of the production costs of Y in October 2004. (Separate the
material cost variance into price, mixture and yield components and the overhead cost
variance into expenditure, capacity and efficiency components using consumption of
ingredient F as the overhead absorption base).
b) Prepare a variance analysis of the overhead production costs on Y in October 2004 on
an activity based basis.
Date posted:
May 7, 2021
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Answers (1)
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Maisha Meta Products Ltd. has prepared a schedule of estimated overhead costs for the
coming year. The schedule was prepared on the assumption that production would...
(Solved)
Maisha Meta Products Ltd. has prepared a schedule of estimated overhead costs for the
coming year. The schedule was prepared on the assumption that production would amount
to 800,000 units. Costs have been classified as either fixed or variable according to the
judgement of the financial controller. The following overhead cost items and their
classification as either fixed or variable form the basis for the overhead cost schedule:
Required:
a) Determine the cost estimation equation using the account analysis method
b) Use the high-low method to estimate the cost of 800,000 units of production expected
in the coming period.
c) Using the simple linear regression, estimate the cost of 800,000 units of production.
d) Use the multiple regression results to prepare an estimated cost for the 800,000 units in
the incoming period.
e) Comment on which of the methods is more appropriate under the above circumstances.
Date posted:
May 6, 2021
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Answers (1)
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The Marima Manufacturing Company produces four products; W, X, Y and Z using
the same plant and processes.
The following information relates to the company:
Required:
(i) Unit costs...
(Solved)
The Marima Manufacturing Company produces four products; W, X, Y and Z using
the same plant and processes.
The following information relates to the company:
Required:
(i) Unit costs per product using activity-based costing tracing costs to production units by
means of cost drivers.
(ii) Comment briefly on the differences disclosed between overheads traced by the present
system and those traced by activity based costing.
Date posted:
May 6, 2021
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Answers (1)
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The current thinking in Management Accounting contends that Activity-Based
Costing (ABC) provides better information concerning products costs and decision
making than traditional management accounting techniques.
However, whereas ABC...
(Solved)
The current thinking in Management Accounting contends that Activity-Based
Costing (ABC) provides better information concerning products costs and decision
making than traditional management accounting techniques.
However, whereas ABC may give a different impression of product costs, it is not
necessarily a good idea and it may be advisable to continue improving traditional
cost accounting techniques before moving to ABC.
Required:
(i) Explain cost behaviour issues underlying the use of ABC.
(ii) Explain why ABC might, be more suitable for modern manufacturing
environment than traditional cost accounting techniques?
(iii) Comment on the reported claim that ABC gives better information as a
guide to decision making than the traditional product costing techniques.
Date posted:
May 6, 2021
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Answers (1)
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Mwamba Development Group (MDG) plans to undertake a project consisting of eleven (11)
tasks. The expected completion time of each task is uncertain and this makes...
(Solved)
Mwamba Development Group (MDG) plans to undertake a project consisting of eleven (11)
tasks. The expected completion time of each task is uncertain and this makes the project
completion time uncertain. MDG has approached a consultancy firm for advice on the
expected project completion time.
The consultancy firm intends to use simulation analysis to deal with the uncertainty of the
project completion time. The following data were obtained by the consultancy firm, for the
purpose of simulation analysis:
Required:
(a) Explain the basic steps that can be used to solve this type of problem simulation
technique.
(b) Draw the network for the project and determine the critical path of the project. Use the
activity‟s expected time to determine the expected completion time of the
project.
(c) Carry out four simulation runs for each activity and using the results of the
simulation, determine the expected project completion time.
(d) State two advantages and two disadvantages of the simulation technique.
Use the following random numbers.
95, 30, 59, 93, 28, 72, 09, 54, 66, 95, 36, 98, 56, 23, 60, 79, 14, 50, 61, 81, 84, 14, 24,
75, 85, 49, 05, 09, 53, 45, 60, 98, 90, 86, 74, 55, 69, 09, 10, 96, 40, 27, 15, 83
Date posted:
May 6, 2021
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Answers (1)
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Kenya Fashions Ltd. sells a wide range of high quality customized outfits. One
particular outfit is bought at Sh.800 and sold at Sh.1,300. Mean holding costs...
(Solved)
Kenya Fashions Ltd. sells a wide range of high quality customized outfits. One
particular outfit is bought at Sh.800 and sold at Sh.1,300. Mean holding costs per
season per outfit amounts to Sh.50 and it costs Sh.8,000 to order and receive goods
into stock. The manufacturers require orders in advance and once a batch has been
made, it is not possible to place a repeat order. Further, it is not possible for
delivery to be staggered over the fashion season.
When a customer buys an outfit, she has a fitting, any alterations or adjustments are
made, and then she collects the outfit a day or so later. Generally if an outfit is out
of stock at one branch, it can be readily obtained from another branch, usually in a
matter of hours. However, if the company as a whole runs out of an item, then the
cost of the stock out is Shs. 200 per item. If the company over buys for a season,
then it is expected that it will be able to dispose of the surplus outfits at Sh.500 each.
The problem facing the management accountant of the company is to decide how many
outfits to order for the season ahead in order to maximize expected profit, bearing in mind
the penalties for over and under ordering.
Required:
(i) Determine the number of outfits to order to maximize expected profits.
(ii) Compare and contrast the model that you have developed with the classical economic
quantity model.
Date posted:
May 6, 2021
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Answers (1)
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From past experience, a company operating a standard cost accounting system has
accumulated the following information in relation to variances in its monthly
management accounts:
1. Its variances...
(Solved)
From past experience, a company operating a standard cost accounting system has
accumulated the following information in relation to variances in its monthly
management accounts:
1. Its variances fall into two categories:
2. For the first category corrective action has eliminated 70% of the variances,
but the remainder have continued unchanged.
3. The cost of an investigation averages Sh.3,500 and that of correcting
variances averages sh.5,500.
4. The average cost of any variance not corrected is Sh.5,250 per month and
the company's policy is to assess the present value of such costs at 2% per
month for a period of five months.
Required:
(i) Two decision trees to represent the position if an investigation is carried
out and the position when an investigation is not carried out.
(ii) Recommend with supporting calculations, whether or not the company
should follow a policy of investigating variances as a matter of routine.
(iii) Explain briefly two types of circumstances that would give rise to variances
in the first category and two types of circumstances that would give rise to
variances in the second category.
Date posted:
May 6, 2021
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Answers (1)
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State the factors to be taken into consideration when establishing the length of a budget period.
(Solved)
State the factors to be taken into consideration when establishing the length of a budget period.
Date posted:
May 6, 2021
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Answers (1)
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In preparing the cash budget for the next year, Kericho Tea Farm Limited finds that
it has limited surplus funds of Sh.70,000,000 which the managing directors...
(Solved)
In preparing the cash budget for the next year, Kericho Tea Farm Limited finds that
it has limited surplus funds of Sh.70,000,000 which the managing directors wishes
to spend on one of two schemes.
Scheme A - Pay Sh.70,000,000 immediately to reputable sales promotion agency which
would provide extensive advertising and planned „reminder‟ advertising over
the next ten years. This is expected to increase the net operational cash flows
by sh.200,000,000 per annum for the first five years and Sh.100,000,000 for
the following five years. Thereafter, the effect would be zero.
Scheme B - Buy immediately labour saving machinery at a cost of Sh.70,000,000 which
would reduce the operating cash outflows by sh.150,000,000 per annum for
the next ten years, at the end of which the equipment will have a salvage
value of zero.
Required
(i) The average accounting rate of return (ARR) per annum for each scheme over 10 years.
(ii) The net present value (NPV) for each scheme assuming the desired rate of return is 18%.
(iii) The internal rate of return (IRR) for each alternative.
Date posted:
May 6, 2021
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Answers (1)
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Marashi Company Ltd. is a merchandising company selling a 40ml bottle of perfume in four
zones within Kenya. The variable cost per bottle is Sh.70 but...
(Solved)
Marashi Company Ltd. is a merchandising company selling a 40ml bottle of perfume in four
zones within Kenya. The variable cost per bottle is Sh.70 but the selling price is different in
each of the four zones. The difference in the selling price is due to the transportation costs
involved. The company has four salesmen available for an assignment in the four zones. The
zones are not equally good in their sales potential. It is estimated that a typical salesman
operating in each zone would bring the following annual sales:
The objective of Marashi Company Ltd. is to maximize contribution from each zone.
Required:
(a) Determine how the four salesmen can be assigned to the zones in order for the
company to maximize the total contribution.
(b) Calculate the total contribution of the company after the assignment.
Date posted:
May 6, 2021
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Answers (1)
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Nzewani Electronic Ltd. manufactures and sells a brand of television sets called LD-TVs.
The three closest competitor brands in the market are SUM-TVs, SON-TVs. Because of...
(Solved)
Nzewani Electronic Ltd. manufactures and sells a brand of television sets called LD-TVs.
The three closest competitor brands in the market are SUM-TVs, SON-TVs. Because of the
custom manufacturing process and their inherent high costs, no other competitor has any
effect on the current market. The year 2002 was an exceptionally good year in terms of gain loss
trade offs. The year's activity is summarized in the following table:
Required:
(a) Advise the management of Nzewani Electronic Ltd. on the expected market share
for each brand at the end of December 2002.
(b) Assuming the same pattern of switching persists, what would be the long run
market share for each brand?
(c) What are the assumptions of the technique you have used in (a) and (b) above?
Date posted:
May 6, 2021
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Answers (1)
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Sanders Ltd is a manufacturing company producing two joint products P1 and P2 in the ratio
of 3:1 at the split-off point. The two products are...
(Solved)
Sanders Ltd is a manufacturing company producing two joint products P1 and P2 in the ratio
of 3:1 at the split-off point. The two products are taken to the mixing plant for blending and
refining after the split off point. The following information is also provided:
The joint process costs are 70% fixed and 30% variable whereas the mixing plant costs are
30% fixed and 70% variable. There are only 5000 hours available in the mixing plant. Usually
4000 hours are taken in processing of Product P1 and P2, 2000 hours for each product while
the remaining 1000 hours are used for other work that generates a contribution of
Sh.100,000 per hour.
The company is now planning to change the production mix of the joint process to 3:2 for
product P1 and P2 respectively. This change will result in an increase in the joint cost by
Sh.500 for each additional litre of P2produced.
Required:
(a) Advise the company on whether to change the production mix.
(b) Explain other qualitative factors that are important to consider before changing the production mix.
Date posted:
May 6, 2021
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Answers (1)
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Aberdares Company Ltd. is a manufacturing company which produces and sells a single
product known as T1 at a price of Sh.10 per unit. The company...
(Solved)
Aberdares Company Ltd. is a manufacturing company which produces and sells a single
product known as T1 at a price of Sh.10 per unit. The company incurs a variable cost of Sh.6
per unit and fixed costs of Sh.400,000. Sales are normally distributed with a mean of 110,000
units and a standard deviation of 10,000 units. The company is considering producing a
second product, T2 to sell at Sh.8 per unit and incur a variable cost of Sh.5 per unit with
additional fixed costs of Sh.50,000. The demand for T2 is also normally distributed with a
mean of 50,000 units and standard deviation of 5,000 units. If T2 is added to the production
schedule, sales of T 1 will shift downwards to a mean of 85,000 units and standard deviation
of 8,000 units. The correlation coefficient between sales of T1 and T2 is – 0.9.
Required:
i The company‟s break-even point for the current and proposed production schedules.
ii The coefficient of variation for the two proposals.
iii Based on your computation‟s in (i) and (ii) above advise the company on whether to add T2 to its production schedule.
Date posted:
May 6, 2021
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Answers (1)
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High-tex Engineering Company Limited wishes to set flexible budgets for each of its operating departments. A separate maintenance department performs all routine and major repair...
(Solved)
High-tex Engineering Company Limited wishes to set flexible budgets for each of its operating departments. A separate maintenance department performs all routine and major repair works on the company‟s equipment and facilities. The company has determined that maintenance department performs all routine and major repair works on the
company's equipment and facilities. The company has determined that maintenance cost is
primarily a function of machine hours worked in the various production departments.
The maintenance cost incurred and the actual machine hours worked during the months of
January, February, March and April 2003 were as follows:
Required:
a) Determine the cost estimation function using:
i High-low method.
ii Regression analysis
b) Using the regression function estimate:
i The maintenance costs that would have been incurred if the machine hours were expected to be 900 in the month of May 2003.
ii The maximum machine hours that would have been worked If the maintenance cost incurred had been limited to Sh.400,000 for the month of May 2003.
c) Assuming that in the month of May 2003 machine hours were 900, establish a 95% confidence interval for this point estimate. (Assume tc = 2.7764 and standard error of estimate, se = 63.25).
Date posted:
May 6, 2021
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Answers (1)
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Joan Odero, an independent movie producer, is negotiating with Roadshow Productions
Limited on a contract for the production and marketing of her next film, titled “The
rise...
(Solved)
Joan Odero, an independent movie producer, is negotiating with Roadshow Productions
Limited on a contract for the production and marketing of her next film, titled “The
rise and fall of a cock”. The budget for the film is, Sh.100 million.
Roadshow Productions Limited is offering Joan Odero a choice of one of the three contracts.
Contract A
1. Roadshow Productions Limited will pay all the production and marketing costs.
2. Joan Odero will receive a fixed fee of Sh.10 million.
3. Joan Odero will receive 10% of gross revenue from the film in excess of Sh.1 billion
(no payment is made for gross revenue up to Sh.1 billion).
Contract B
1. Roadshow Productions Limited will pay 80% of all the production and marketing costs
up to Sh.100 million and 30% of production and marketing costs in excess of Sh.100 million
2. Joan Odero will receive 10% of all gross revenue for the film. Contract C
1. Roadshow Productions Limited will pay 50% of production and marketing costs up to Sh.100 million.
2. Joan Odero will receive 30% of all gross revenue from the film.
Joan Odero estimates the following probabilities for the gross revenues:
P(high demand of Sh.2 billion) 0.1
P(medium demand of Sh.500 million) 0.3
P(low demand of Sh.100 million) 0.6
She estimates the following probabilities for the cost of production:
P(budgeted cost of Sh.100 million) 0.6
P(high cost of Sh.200 million) 0.4
Required:
a) The expected monetary value for Joan Odero under each contract for each of the six possible events.
(Hint: The possible events are high demand – budgeted costs, high demand –
high costs, medium demand – budgeted costs, medium demand – high costs, low demand – budgeted costs, and low demand – high costs).
b) Joan Odero will choose the contract that maximizes her expected monetary value from the film. Which contract should she choose? (Show calculations).
c) What information might Joan Odero use in assessing the probability distribution for the production and marketing costs of “The rise an fall of cock” film?
Date posted:
May 6, 2021
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Answers (1)
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Traditional budgeting systems are incremental in nature and tend to focus on cost centers. Activity based budgeting (ABB) links strategic planning to the overall performance...
(Solved)
Traditional budgeting systems are incremental in nature and tend to focus on cost centers. Activity based budgeting (ABB) links strategic planning to the overall performance measurement aimed at continuous improvement.
Required:
i Explain the weakness of traditional incremental budgeting systems.
ii Describe the main feature of activity based budgeting system and comment on its advantages.
Date posted:
May 6, 2021
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Answers (1)
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“It is now fairly and widely accepted that conventional cost accounting, distorts
management's view of business through unrepresentative overhead allocation
and inappropriate product costing. This is because...
(Solved)
“It is now fairly and widely accepted that conventional cost accounting, distorts
management's view of business through unrepresentative overhead allocation
and inappropriate product costing. This is because the traditional approach usually absorbs
overhead costs across products solely on the basis of the direct labour involved in their
manufacture. As direct labour cost expressed as a proportion of total manufacturing cost
continues to fall, this leads to more an more distortion and misrepresentation of the impact
of particular products on total overhead costs (from Financial Times)
Required:
Briefly discuss the above statement and state what approaches are being adopted by management accountants to overcome such criticism.
Date posted:
May 6, 2021
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Answers (1)
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Briefly explain three methods that can be used to analyze uncertainty in cost-volume-profit (C-V-P) analysis.
(Solved)
Briefly explain three methods that can be used to analyze uncertainty in cost-volume-profit (C-V-P) analysis.
Date posted:
May 5, 2021
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Answers (1)
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A university offers a range of degree courses. The university's organization structure
consists of three faculties each with a number of teaching departments. In addition, there...
(Solved)
A university offers a range of degree courses. The university's organization structure
consists of three faculties each with a number of teaching departments. In addition, there is
a university administrative/management function and a central services function.
The following cost information is available for the year ended 30 June 2002
a) Occupancy costs total Sh.15,000,000. Such costs are apportioned on the basis of area
used which is:
2. Administration/management costs:
Direct costs: Shs.17,750,000
Indirect costs: an apportionment of occupancy costs.
Direct and indirect costs are charged to degree courses on a percentage basis.
3. Faculty costs:
Direct costs: Shs. 7,000,000.
Indirect costs: an apportionment of occupancy and central services costs.
Direct and indirect costs are charged to teaching departments.
4. Teaching departments:
Direct costs: Shs. 55,250,000.
Indirect cost: an apportionment of occupancy costs and central services costs plus all
faculty costs.
Direct and indirect costs are charged to degree courses on a percentage basis.
5. Central services:
Direct costs: Sh.10,000,000
Indirect costs: an apportionment of occupancy costs.
6. Direct and indirect costs of central services have in previous years been charged to users
on a percentage basis. A study has now been completed which has estimated what user
areas would have paid external suppliers for the same services on an individual basis. For
the year ended 30 June 2002, the apportionment of central services costs is to be
recalculated in a manner which recognizes the cost/savings achieved by using the central
services facilities instead of using external service companies. This is to be done by
apportioning the overall savings to user areas in proportion to their share of the
estimated external costs.
7. The estimated external cost of service provision are as follows:
Central services are apportioned as detailed in (5) above.
The total number of graduates from the university in the year to 30 June 2002 was 2,500.
Required:
a) Prepare a flow diagram which shows the apportionment of costs to user areas. (No value needs to be shown).
b) Calculate the average cost per graduate for the year ended 30 June 2002, for the
university and for each of the degree courses in business studies, mechanical engineering
and catering studies (round your values to the nearest Sh.1,000)
c) Suggests reasons for any differences in the average cost per graduate from one degree
course to another, and discuss briefly the relevance of such information to the
university's management.
Date posted:
May 5, 2021
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Answers (1)
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Large service organizations such as banks and hospitals used to be noted for their lack of
standard costing systems and their relatively unsophisticated budgeting and control...
(Solved)
Large service organizations such as banks and hospitals used to be noted for their lack of
standard costing systems and their relatively unsophisticated budgeting and control systems
compared to the practice in large manufacturing organizations. But this is changing any
many large service organizations are now reversing their use of management accounting techniques.
Required:
a) Explain which features of large service organizations encourage the application of
activity-based approaches to the analysis of cost information.
b) Explain which features of service organizations may create problems for the application
of activity-based costing.
c) Explain the uses of activity-based cost information in service industries.
Date posted:
May 5, 2021
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Answers (1)