RJET 2 Task 4 Competition Bikes Inc (CB) is now making both CarbonLite and Titanium framed bikes and is therefore in need of re-tooling some of the current practices being used. The company currently uses a traditional based costing (TBC), however an activity based costing (ABC) may be more beneficial. Also, the company’s breakeven point with regards to cost volume profit for each bike type is in question, especially since there is the potential for a $50,000 increase to production facility and a 10% materials cost increase. These areas are under evaluation to help the company navigate the new dual product line production.
A1: Costing Method A Traditional Based Costing method looks at the cost to produce a product versus the profits it generates and predicts based on one lump sum. An Activity Based Costing method looks at the whole process to make a product, the activity involved to make the product, and is a more accurate breakdown of the true costs to make a product (Marx, C., 2009). Since most companies make products with both manpower and technology, using the TBC system causes an inaccurate forecast of determining the costs to make a product. TBC looks at what is spent to make a product but not why it was spent. The activity based costing (ABC) is more accurate for determining the actual costs that are spent to make a product because it does not assume that a product generates costs. ABC looks at the costs for each activity and assigns financials based on those activities. This system can be long and tedious to calculate, but is flexible and allows companies to have a better handle on budgeting and the actual costs to produce a product.

ABC does not change the cost to make a product; it only takes into account the manufacturing overhead as well as the nonmanufacturing overhead, where traditional does not include the nonmanufacturing overhead. By