Difficulties associated with allocating overhead costs

Reference no: EM13163303

Topic 1: Ethics and budgeting

Budgeting is generally regarded as an essential technique for planning and controlling an organisation's activities. However, budgeting systems can also create incentives for unethical behaviour.

Using examples to illustrate your discussion, explain:

How the use of budgets in planning and controlling an organisation's activities may create incentives for unethical behaviour; and,
What strategies organisations can adopt to minimise the risk of their budgeting system leading to unethical behaviours.

Topic 2: Accounting for overhead

Modern manufacturing processes are typically characterised by large-scale automation, with machines replacing people. Consequently, manufacturing overhead has often become a much more significant component of total manufacturing costs and this presents a particular challenge for cost and management accountants. Competitive pressures make it essential that firms have accurate and up-to-date cost data, but overhead is an indirect cost and allocating it to individual products and product lines will always involve subjectivity and estimation.

Discuss the difficulties associated with allocating overhead costs in the contemporary manufacturing environment and identify strategies that firms can adopt to help make their overhead allocations more accurate and reliable.

Reference no: EM13163303

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