With the old accounting system, overhead costs were the same for both types of products which leads the company to under estimate the total cost and therefore give a price that doesn’t optimize profit and profitability. The activity based costing system allowed the company managers to estimate the profitability for each costumer and see where the company the company was loosing money and therefore which contracts should be reviewed and renegotiated to meet the costs they generate...
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It helps them formulate solutions and proves to be a very useful control and decision tool whereas the old accounting system
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