Question
Chucky Ltd is a toy manufacturer. For many years Chucky Ltd produced and sold just one toy, a doll, but it has recently started to
Chucky Ltd is a toy manufacturer. For many years Chucky Ltd produced and sold just one toy, a doll, but it has recently started to produce and sell a range of different toys including teddy bears, robots, cars and trains. The accountant believes Chucky Ltd should give up the traditional method of allocating overheads and instead use activity-based costing. He has made a 35,000 request to invest in a costing system which will help the company to collect the data and support him in implementing activity-based costing. It was quickly turned down by a senior vice-president who replied: "Given a choice, I will always prefer a 35,000 investment in improving things which have a real impact on our daily operations and improve our profitability on the long-term, such as buying new machines or increasing the number of our stores. How does the company benefit by our spending 35,000 on a supposedly better accounting system?" How should the accountant respond to convince the vice-president to spend the necessary money on implementing an activity-based costing system?
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