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Section B: Assessment Brief and Requirements

Management accountants increasingly face the challenge of balancing compliance with the need for relevant internal information. While full costing (absorption costing) remains required under IAS 2 for external financial reporting, ensuring inventory valuation and comparability, Activity-Based Costing (ABC) is widely adopted for internal reporting because it allocates overheads based on activities and cost drivers, offering better decision-making process. ABC helps managers understand resource consumption and improve pricing, process efficiency, and product mix decisions. However, its benefits depend on the firm’s cost structure. Recent research shows that industry context, cost structure, and cost-information intensity shape the choice and success of costing systems (Aydiner et al., 2021; Diavastis et al., 2025). Understanding these differences is essential to evaluate when ABC yields superior insights compared to traditional full costing.

REQUIRED

You are required to produce a report of no more than 1,250 words. In this report, you should:

1-   Students will be randomly assigned two U.S.-listed companies (one manufacturing and one service company). The assigned companies can be found on Moodle. Using a relevant analytical method, estimate the fixed and variable costs for both companies (you have to calculate the Fixed Cost Ratio). The analysis should be based on financial data extracted from the income statement and relevant notes to the accounts and third party reports (i.e. stock market and analysts’ reports). Information disclosed in the companies’ Form 10-K, 10-Q, 8-K reports may also be used. You must provide evidence of using reliable data, such as screenshots or extracts from the official company reports, included in the appendix. (20%) [200 words]

2-   Based on a critical analysis of the findings from Question 1, recommend the optimal costing method for the two companies. Provide tailored evidence-based reasoning that reflects the company’s unique information, operations, and business context to support your choice (50%)[750 words]

3-   Discuss  the relevance of Activity-Based Costing (ABC), full (absorption) costing, and variable (marginal) costing methods in different contexts. (20%) [300 words]

(10%) Academic Judgement

100%

References

Aydiner, A. S., Tatoglu, E., Bayraktar, E., Zaim, S., & Delen, D. (2021). A firm—industry analysis of services versus manufacturing: A data analytics perspective. European Research on Management and Business Economics, 27(3).

Diavastis, I. E., Anagnostopoulou, E., & Papadopoulos, I. (2025). What drives cost system sophistication? Empirical evidence from the hotel sector. Journal of Risk and Financial Management, 18(7).

Section C: Additional information from module leader (as appropriate)

Read the CW questions carefully, and plan for the answer before start writing.

A coursework clinic is scheduled to take place during week 5 (one week before submission), so please take advantage of these resources.

Section D: Module Learning Outcomes covered in this Assessment

This assessment contributes towards the achievement of the following stated module Learning Outcomes as highlighted below:

• Understand the roles of profit, cash, and ‘cost’ in decision making

• Identify issues in overhead cost recovery and evaluate their impacts on both cost reporting and decision making