Activity-based costing (ABC)Marconi is a Portuguese telecommunications company thatencountered problems with its ABC system....Activity-based...

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Accounting

Activity-based costing (ABC)
Marconi is a Portuguese telecommunications company thatencountered problems with its ABC system. The company’s productionmanagers felt that 23% of the costs included in the system werecommon costs that should not be allocated to products and thatallocating these costs to products was not only inaccurate, butalso irrelevant to their operational cost reduction efforts.
Concerns over the application of the ABC approach at Marconihave been raised by personnel, including some of the seniorleadership team. It is the opinion of some that this method of costallocation does not accurately reflect the cost of production andwill lead to unnecessary improvements that will ultimately resultin the elimination of jobs. As a respected member of the leadershipteam, the Chief Executive Officer (CEO) has tasked you withinvestigating the concerns expressed by some of the employee andmanagement officials. You are expected to prepare a position papereither defending the use of the ABC method or recommending analternative method of cost allocation.
1 defending the use of the ABC method or recommending analternative method of cost allocation.

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Answer There are two method of allocation of indirect costsoverheads to different departmentproducts of an organization ABC method Activity based costing Traditional absorption costing method I suggest using ABC See Answer

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In: AccountingActivity-based costing (ABC)Marconi is a Portuguese telecommunications company thatencountered problems with its ABC system....Activity-based costing (ABC)Marconi is a Portuguese telecommunications company thatencountered problems with its ABC system. The company’s productionmanagers felt that 23% of the costs included in the system werecommon costs that should not be allocated to products and thatallocating these costs to products was not only inaccurate, butalso irrelevant to their operational cost reduction efforts.Concerns over the application of the ABC approach at Marconihave been raised by personnel, including some of the seniorleadership team. It is the opinion of some that this method of costallocation does not accurately reflect the cost of production andwill lead to unnecessary improvements that will ultimately resultin the elimination of jobs. As a respected member of the leadershipteam, the Chief Executive Officer (CEO) has tasked you withinvestigating the concerns expressed by some of the employee andmanagement officials. You are expected to prepare a position papereither defending the use of the ABC method or recommending analternative method of cost allocation.1 defending the use of the ABC method or recommending analternative method of cost allocation.