Many companies recognize that their cost systems are inadequate for today’s powerful global competition. Managers in com

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Many companies recognize that their cost systems are inadequate
for today’s powerful global competition. Managers in companies
selling multiple products are making important product decisions
based on distorted cost information, as most cost systems designed
in the past focused on inventory valuation. In order to elevate the
level of management information, it has been suggested that
companies should have as many as three cost systems for (1)
inventory valuation, (2) management control of operations, and (3)
an activity-based costing system for decision-making.
A. Discuss why the traditional cost system, developed to value
inventory, distorts product cost information.
B. Identify the purpose and characteristics of each of the
following systems:
1. Inventory valuation.
2.Management control of
operations.
3.Activity-based costing.
C. Describe the benefits that management can expect from
activity-based costing.
D. List the steps that a company, using a traditional cost
system, would take to implement activity-based costing.