Cintra is the Management Accountant of Fine pens Ltd. The company manufactures various types of pens ranging from cheap disposable units to expensive units which are intended to be reusable. Both ball point pens and fountain pens are produced. The current cost allocation system in use is Absorption costing.and Cintra is very comfortable with the use and application of this costing method.

Ram has recently joined the company in a senior capacity. Both Cintra and Ram were recently discussing the current costing method and another method, namely Activity based costing. Ram suggested a switch to Activity based costing as the method of cost allocation .

Required:

a) Briefly state why Ram may have suggested such a switch . Relate to the scenario described above. (2 marks)

b) List and briefly describe 3 advantages of Activity based costing over Absorption costing. ( 3 marks)