Product Service Organization / Company Activity-Based Costing Essay

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product service organization / company Activity-Based Costing (ABC). Then identify activities ABC cost drivers activities. Estimate application rates cost driver. If identify specific actual amounts, make a reasonable estimate apply tool data factual.

Activity-Based Costing at Ford Motor Company

Ford Motor Company is an international leader of the automobile industry, but it is now faced with escalading problems. A few years ago, the company started sensing competitive pressures from the Japanese manufacturers, who had aggressively penetrated the American market and were gaining increased market share. The outcome was possible as the firm had focused on large size and luxurious vehicles, underestimating the customer demand for small size and fuel efficient engines. Following these issues, the global economy went into recession and the automobile manufacturer was once again hit by a decreased demand for its products (Plunkett Research).

In order to overcome these challenges, Ford Motor Company is reconsidering its product palette and has come to invest more in the development of vehicles integrating fuel efficient engines. The most relevant example in this sense is represented by the Ford Fiesta, which would be hereby assessed from an accounting standpoint.

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The accounting methods used by the company are classified and not released to the public, but it is now assumed that the accounting specialists at Ford could be using Activity-Based Costing. This assumption is substantiated by the fact that ABC assigns costs to activities, rather than products and services, and as such creates a more accurate image (Prosci, 2001). It is believed that such an accounting approach is highly necessary at Ford Motor Company now.

In line with this assumption, the following two activities are identified:

Design of the Ford Fiesta, estimated at $1,000 per automobile

Manufacturing of the Ford Fiesta, including manufacturing of the components and assembly, estimated at $5,000

Distribution of the Ford Fiesta, including marketing, advertising and logistics, estimated at $2,000 per automobile.

The overheads associated with the production of the Ford Fiesta are of $6,000, to which another $2,500 is added in the form of labor costs,….....

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"Product Service Organization Company Activity-Based Costing" (2011, July 07) Retrieved May 6, 2024, from
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