You are on page 1of 1

d) Non-valued activities are actions that are unnecessary, inefficient and

have roomfor improvement. These activities should be identified and

eliminated. Examples ofsuch activities are moving materials in a factory
and scheduling of work.When it comes to the traditional, volume-based
costing system, it tends toovercost high-volume products and undercost
low-volume products. This can be proven when an ABC costing is
prepared for the same products. The mishap provided by the traditional
costing is revealed in the ABC costing by clearly allocatingoverhead
costs to the products instead of just assigning overheads to products
basedon direct labor as it is not an appropriate choice of cost driver. The
main factors whyABC costing is more appropriate for a factory with
many product lines are non-unitlevel overhead costs and product
diversity.Direct labor is a unit-level cost driver. Hence, using traditional
costing may causesome of the overhead costs to not be incurred during
production of multiple productlines. So, activity-based costing ensures
that the most convenient cost driver for eachcost pool. Other than that,
products produced by a factory are most probably differentform each
other. Thus, different ratios of overhead activities are utilized. A unit-
levelcost driver will not be able to pinpoint these ratios but use an
average instead.The production that comes out of an organization
depends on the efficiency levelof the workforce of each department.
Employees should make a habit in preparing paperwork. In an activity-
based costing (ABC) system, the documentation will help toallocate costs
of activities to product lines based on the total activity created.Managers
should interview their prime staff, analyze records, put together
amultidisciplinary project team and prepare storyboards to have a visual
of identifyinggoals and specifying the important activities to formulate
the a reliable ABC system.An activity-based management helps to
reexamine product pricing to correlatewith the product costs presented by
the ABC analysis. The management team plays arole in identifying and
removing the non-value-added activities and costs. Whenidentifying
activities, managers should be thorough with the activity analysis,