It is now fairly widely accepted that conventional cost accounting distorts management's view of business through...

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It is now fairly widely accepted that conventional cost accounting distorts management's view of business through unrepresentative overhead allocation and inappropriate product costing. This is because the traditional approach usually absorbs overhead costs across products and orders solely on the basis of the direct labour involved in their manufacture. And as direct labour as a proportion of total manufacturing cost continues to fall, this leads to more and more distortion and misrepresentation of the impact of particular products on total overhead costs. Required You are required to discuss the above and to suggest what approaches are being adopted by management accountants to overcome such criticism. (8mks) b) Product costing and pricing strategies will interact in helping to achieve competitive advantage leading to retention or increase of market share and maintenance or improvement of profit levels. Discuss this statement in the context of cost leadership and product differentiation. (7mks) It is now fairly widely accepted that conventional cost accounting distorts management's view of business through unrepresentative overhead allocation and inappropriate product costing. This is because the traditional approach usually absorbs overhead costs across products and orders solely on the basis of the direct labour involved in their manufacture. And as direct labour as a proportion of total manufacturing cost continues to fall, this leads to more and more distortion and misrepresentation of the impact of particular products on total overhead costs. Required You are required to discuss the above and to suggest what approaches are being adopted by management accountants to overcome such criticism. (8mks) b) Product costing and pricing strategies will interact in helping to achieve competitive advantage leading to retention or increase of market share and maintenance or improvement of profit levels. Discuss this statement in the context of cost leadership and product differentiation. (7mks)

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