Download ACC202Samsungs New Challenge: Rising Component CostsAshford and more Lecture notes Accounting in PDF only on Docsity! ACC202 Samsung’s New Challenge: Rising Component Costs Ashford University ACC202 Principles of Managerial Accounting Samsung’s New Challenge: Rising Component Costs Could Samsung benefit by using Activity Based Costing (ABC) The Samsung group is a South Korean multinational conglomerate that is headquartered in Samsung Town, Seoul. Samsung is known to be the world’s most popular brand of technology with devices like televisions, smart phones, household appliances, laptops and tablets. Founded by Lee Byung-Chul in 1938 as a trading company primarily focused on food processing, textiles, insurance, securities, and retail. “Samsung later entered the electronics industry in the late 1960s and ever since it has increasingly globalized its activities and electronics; in particular, its smart/mobile phones and semiconductors have become its most important source of income. As of 2017, Samsung has the 6th highest global brand value” (wikipedia.org, 2018). Samsung has a wide range of competition with all other technology manufactures. So that they can remain in their position as the largest distribution within the smartphone market it must produce a larger profit. Continuing to grow with a challenging and pioneering spirit is the philosophy that is the spirit of Samsung. Activity Based Costing (ABC) is a costing system that focuses on activities performed to produce products. It is a method utilized for organizing along with allocating cost that is associated with an organization implying that a business can reduce projecting cost with determining precisely how much the companies activity costs also allotting the determined amount of capital to the activity. This is where this method will enable Samsung to use the various cost of every activities involved in producing its product in order to determine final cost of production. Smartphone production activities like production set-up, engineering, salaries, inspections, transportation, and rent are all responsible for the incurrence of costs. By using the ABC method it will allow Samsung to easily track and trace all cost involved by first identifying the organization’s main activities, second, identifying the factors which determine the costs of an activity or cost drivers, third, collecting the costs of each activity or cost pools, and lastly, charge support overheads to products on the basis of their usage of the activity, expressed in terms of the chosen cost driver (Agendal, Nilsson, 2007) Could Samsung benefit by using a Standard Cost System The Standard Cost System “is an accounting technique that some manufacturers use to identify the differences or variances between the actual costs of the goods that were produced, and the costs that should have occurred for those goods. Meaning the costs that should have occurred for the actual good output are known as standard costs” (Averkamp, ND) Standard Cost involves accurately planning what cost is going to be for a company’s upcoming budget year along with comparing actual cost with planned cost. This will allow management to determine how much a product should cost and how much it does cost. Cost variances or exceptions are reported when a company compares actual cost and standard cost. Reporting by the principle of exceptions will allow management to focus on correcting the cost variances. (Warren, 2018) Samsung can benefit greatly if it applies Standard Cost System to the production of its smartphones. The Standard Cost System will enable Samsung production unit to improve cost control by accurately calculating the total cost of direct materials, direct labor, and factory overhead for production processes of all the smartphones. “Samsung Electronic is earmarking to raise production for less expensive products in capturing available markets with customers for developing regions who can’t afford pricey electronic items.” (Chu and Keh 2006).
