LP2 Seminar Assessment

1. In your own words, explain what is meant by the “Death Spiral”

2. Exhibit 4-22 (attached) shows the job cost sheet for the Strict Custom Framing company.

a. Explain why shipping is included in direct cost and

b. Usually, Materials is considered a direct expense. Explain why there are only 2 categories: Direct and Conversion.

3. ABC is clearly a more complex cost allocation system than the traditional cost accounting system. If you were a consultant to a company that has in place a traditional labor-hours driven cost accounting system,

(a) Identify why a company might resist implementing an ABC system and

(b) Suggest one way to overcome the resistance