ABC Pharma, despite being proficient in rolling out quality products was witnessing a stagnation in the profit margins. The Board was observing a case of distorted Margins, that is, in one of the products, the margins were lower than expected and in the other it was higher. That essentially implied that one of the products was overpriced and the other was under priced. Either ways, the effects on the Company were adverse, be it low margins or a decreasing market share. The CFO pointed out an anomaly that since the company used the Traditional Costing Systems which are best suited for labour intensive products and not for capital intensive products, they were witnessing inaccurate pricing. He urged the company should adopt an alternative technique that will assign costs based on activity split ups and driver linkages and hence the products will be more accurately priced. 

Which technique is the CFO trying to adopt? Build a dummy data set to support his argument and what is your view on his recommendation? 

How will the alternative technique be more accurate, explain?

Answer rating: 100% (QA)

The method being recommended by CFO is Movement Based Costing ABC AB... View the full answer