5. What are the principal differences between activity based costing (ABC) and traditional product costing?…
5. Question : (TCO 1) Which of the following costs is not part of manufacturing overhead?…
d) Direct material cost (per unit), direct labour cost (per unit), fixed overhead costs (per unit), and variable overhead costs per unit…
Former Steelers’ running back Franco Harris created Super Bakery Inc., in 1990. “Super Bakery is a virtual corporation, in which only the core, strategic functions of the business are performed inside the company. The remaining activities—selling, manufacturing, warehousing, and shipping—are outsourced to a network of external companies”. When management suspected that the established cost method was making a sizeable difference in its real cost structure, it wanted a new way of assigning their costs. Management also supposed an extensive difference in the cost of serving their customers in other parts of the country. However, its established methods were distributing costs over the entire customer foundation. Management reviewed and eventually altered their system to recognize the costs associated with the task performed in the company.…
7. Which of the following would not be a cost that would be allocated using ABC? (1 mark) a. The cost of wood used in a factory making furniture. b. Costs associated with handling customer complaints c. The costs of heating a batch of steel d. Product advertising 8. Which of the following would not be an appropriate cost driver for assigning batch related costs to a product? (1 mark) a. The number of hours spent moving a batch around the factory…
5.) Is the company more or less profitable or the same under ABC compared to the traditional costing system?…
Activity based costing is a strategy used by managers to determine where to spend money. This contrasts the traditional costing system (Marx, 2009). Activity based costing provides a lot more benefits for the company and displays a more clear look at how the company is doing economically (Cooper, 1991). It allows managers to see where to spend money, and on which resources to focus their spending (Cooper, 1991). Managers should cut back spending on resources, and at the same time increase the output of their products (Cooper, 1991). There are several benefits to using the activity based costing method, and that is why it is growing in popularity. Though, in order for managers to optimize the benefits that activity based costing can provide, they will need to fully understand how it works. Activity based costing in most basic terms is spending money on specific recourses depending on the activity they serve the company economically (Cooper, 1991). This is in contrast to the standard per-unit costs. A per-unit cost is not a beneficial to know, appose to knowing how much money a specific production line would bring in per year (Cooper, 1991). Knowing how much each section brings in will allow the managers to know how…
Traditionally, companies used costing based solely on direct labor or machine hours in order to allocate indirect costs to products. A more recent approach is the Activity Based Costing (ABC) that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.…
This company was dealing in numerous products and was also making strides in adapting varied operational methodologies such as the desktop delivery or the sales through e commerce internet sites. The operations of the company are such that it would be apt for the company to establish a cost driver rates and apply those rates in the products of the company. The cost driver rates could also be used by the company while applying the cost overheads to some other products that the company may be planning in the future. The existing system of the company involves use of many activities and the company has been able to regularize the operations of the company and is clear about the operational goals that need to be fulfilled by the company. The company is dealing in an industry where the products are quite heterogeneous in nature and once the products are purchased there is very little scope of application of direct materials or labor. The major cost that is expected to be incurred is the overhead costs which are factual dependent upon the number of activities undertaken to accomplish the task. The cost drivers need to be ascertained before the application of the cost drivers to the number of activities attributable to the product as regards the particular activity. Alternate Solution A noteworthy fact is that the company has posted increased losses in spite of an increase in overall sales of the company. The objective of the exercise is to let the management be aware of the reasons as to why the company has posted losses even after an increase in the sales.…
12-B2. Exhibit 12-4 on page 532 illustrates the types of calculations that are used for…
Marx, C. (n.d.). Activity Based Costing (ABC) And Traditional Costing Systems. Retrieved April 4, 2014 from http:/financialsupport.weebly.com…
Report on the Reason of Why the Companies Should Implement ABC Rather than Traditional Cost System…
* Activity-based costing (ABC) is an accounting method that allows businesses to gather data about their operating costs. Manac’s manager can take into account the overall production costs as cost of sales and administrative cost not just confined to generate data to create a better budget and gain a greater overall understanding of the expenses that are required to keep the company running advantageously and avoiding mistakes in decision-making.…
The major strength of activity based costing is the ability to estimate the cost of individual products and services precisely. By transferring overhead costs to individual units of products or services, ABC helps identify inefficient or non-profitable products or activities that help into the profitability of efficient processes or highly profitable products.…
5. Write short notes on the following: i. Product Costs ii. Period costs iii. Out of pocket cost iv. Sunk Costs v. Opportunity cost vi. Replacement cost vii. Joint cost (DEC, 2011)…