(Traditional vs. ABC methods) The cost systems at many companies selling multiple products have become less than adequate in today’s global compe¬ tition. Managers often make important product decisions based on distorted cost information because the cost systems have been primarily designed to focus on inventory measurement. Current literature suggests that many man¬ ufacturing companies should have at least three cost systems, one each for inventory measurement, operational control, and activity-based costing.

a. Identify the purpose and characteristics of each of the following cost systems:

1. Inventory measurement 2. Activity-based costing

b. Discuss why a cost system developed for inventory valuation could dis¬ tort product cost information.

C. Describe the benefits that management can obtain from using activity- based costing.

d. List the steps that a company using a traditional cost system would take to implement activity-based costing.

(CMA adapted)

LO1.