A accounting calculations Essay Example | Topics and Well Written Essays - 500 words

A accounting calculations - Essay Example According to Caplan (2006) suitable methods like value engineering and value analysis could contribute to reducing the cost of the three products. It helps in sorting additional overhead components like cooperative marketing, high levels of customer service, and product return handling to identify profitable customers. The approach enables the organization to put more emphasis on clients who earn large profits for the company while turning away unprofitable customers (Caplan, 2006). Distribution of product is a major undertaking for all enterprises. Most companies employ different channels of product distribution like email, distributors, the Internet, retails shops, and order catalogue. Reducing distribution cost is the primary function of ABC. Structural components that maintain the distribution falls under overhead. Therefore, ABC helps in deciding efficient delivery systems with lower costs or dropping unprofitable channels (Caplan, 2006). ABC helps the management decide on whether to buy or make a product. It does this by highlighting costs associated with product manufacturing. Such is the basis that guides one to either outsource or carry out in-house manufacture. Using ABC makes it easier to allocate overhead costs appropriately. Such allocation assists in determining margins of product lines, products, and their subsidiaries. The information guides the personnel to identify areas that would give maximum return margins (Caplan, 2006). The model assists marketing managers decide on the minimum price for the product. ABC model guides the marketing personnel to select particular overhead costs for inclusion in the minimum cost. The approach eradicates the possibility of selling a product at a loss or overpricing (Caplan, 2006). Using ABC model increases the cost pool volume, which increases the cost incurred to manage the system. A reduction in cost pool involves running a system that analyses and maintains the cost