Paper, Order, or Assignment Requirements

Traditional cost accounting has been based on allocating a subjective or calculated range of indirect expenses to direct costs. Activity Based Costing (ABC) offers an alternative approach. Much of the textbook work on ABC refers to examples from large-scale manufacturing, yet according to the UK government Statistics Office (Chamberlin, 2011) small and medium–sized enterprises (fewer than 250 employees) account for 99.9 per cent of all enterprises in the UK private sector, whilst representing 59.8 per cent of employment and 49.0 per cent of turnover. The UK services industries account for around 75% of total value–added in the UK and the Public Sector accounts for about 45% of total UK spending.

Required:

In the context of a UK supermarket company planning to introduce ABC:

1) Explain how ABC system differs from traditional absorption costing system, using examples drawn from the supermarket industry.

2) Discuss BOTH the benefits and drawbacks that a UK supermarket company must consider when using activity based costing to identify costs from arrival at the store to purchase at the till and explain how this might operate.

3) Explain why and how different items and product groups are likely to attract different costs between arriving at the back of the store and reaching the till.

4) Evaluate the activities in the supermarket industry and how these affect the internal efficiency, quality and profitability per product or service line.