Solution-Explain what is meant by broad averaging

Explain what is meant by broad averaging

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Reference no: EM133135301

Question - WW Ltd, a retail company has been experiencing under costing and over costing of some products due to its existing costing system. Garry Lowe, the management accountant at WW Ltd proposes the executive committee of WW Ltd to implement an activity-based costing system at a cost of $50,000. One of the members of the committee, the deputy CEO, noted, 'Given a choice, I will always prefer a $50,000 investment in improving things a customer sees or experiences, such as our shelves or our store layout. How does a customer benefit by our spending $50,000 on a supposedly better accounting system?'

Required -

(a) Explain what is meant by broad averaging in relation to tradition costing systems.

(b) Explain why WW Ltd must be concerned about the over-costing and under-costing caused by the existing costing system.

(c) If you are the management accountant at WW Ltd, form a formal email response to the Deputy CEO explaining how the company might benefit from activity-based costing system particularly in relation to pricing decisions.

Reference no: EM133135301

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Explain what is meant by broad averaging

Reference no: EM133135301

Reference no: EM133135301

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