Rick White has recently discussed the intent to diversify Swiss Chocolate’s prod

Question

Rick White has recently discussed the intent to diversify Swiss Chocolate’s product line with Steve Smith. Smith notes that the new product will be a dark chocolate candy bar featuring various types of dried fruit and a higher percentage of cacao, which will be touted as a heart-healthy product due to high antioxidant nutritional qualities. This differs from the current basic milk-chocolate bar that Swiss Chocolate manufactures presently, which has no added fruit. White has related the fact that the company expects this coming year’s milk-chocolate bar volume to decline and the new product volume to rise. There will be a new machine required to accommodate the new product, and it will run in batches.

White suggests that Smith consider Activity-Based Costing for completing this analysis. Before Smith undertakes this analysis, he considers the advantages and disadvantages of implementing activity-based costing.

Indicate an advantage to implementing ABC for this scenario. Support your response.

Indicate a disadvantage to implementing ABC for this scenario. Support your response.

cite any sources in APA format

Explanation / Answer

An advantage of using ABC here will be identification of non-value added activities (or those activities which either don't contribute to the final product, or their contribution is redundant). While using ABC analysis for the new product, Smith can identify the non-value added activities that are used by the current milk-chocolate bar production. The underlying reason is, volume of milk-chocolate bar is expected to decline and therefore, cost control is of crucial importance as to keep profitability acceptable.

But ABC has a disadvantage too in this case. ABC does not conform to GAAP or IFRS accounting standards. So, Smith needs to maintain two book-seeping systems: One for traditional financial reporting system and the other for ABC. It will be cumbersome, costly, time-wasting and in instances where there is an overlap, a duplicating effort.

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