Skylar, Inc.: Traditional Cost System vs. Activity-Based Cost System – A Managerial Accounting Case Study

Abstract

This case is about a fictitious office workstation manufacturing company “Skylar Inc.” and their implementation of the traditional cost system and the activity-based cost system (ABC, hereafter) when allocating product costs. The case focuses on the application of activity-based costing in assigning costs to activity cost pools, calculating activity rates, and assigning activity costs to cost objects. It also highlights the difference between the traditional cost system and ABC in regards to allocating manufacturing and non-manufacturing overhead costs and assigning direct costs to products. This case is designed to provide students with both number crunching exercises and theoretical discussions of the topics.