Reference no: EM131975026

Question - At a board meeting there was some concern over the introduction of activity-based costing.

The finance director argued: "I very much doubt whether selling the Unwind model is viable but I am not convinced that activity-based costing would tell us any more than the use of labour hours in assessing the viability of each product".

The marketing director argued: "I am in the process of negotiating a major new contract with a caravan rental company for the Getaway model. For such a big order they will not pay our normal prices so we will need to ensure very competitive pricing, and therefore accurate costing. I am not convinced that activity-based costing would achieve this as it merely averages costs for our entire production".

The managing director argued: "I believe that activity-based costing would be an improvement but it still has its problems. For instance, if we carry out an activity many times surely, we get better at it, and costs fall rather than remain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver".

The chairman argued: "I cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no difference to me".

Question: Examine the implications of activity-based costing for Wayco Leisure, and in so doing evaluate the issues raised by each of the directors.