abc costing

Topics: Costs, Cost, Cost accounting Pages: 6 (390 words) Published: February 8, 2014


NAME SIBONGILE MOREBLESSING
NAME HEAVENS

SURNAME MAPIYO

STUDENT NUMBER P0128855B

PROGRAMME BUSINESS MANAGEMENT

COURSE ACCOUNTING 2B

COURSE CODE CAC 2206

LECTURER MR D MADZIVANYATI

DUE DATE 07 FEBRUARY 2014

1(a)

TRADITIONAL ARBSORPTION COSTING STATEMENT

DETAILS
COST PER SYSTEM

Systems
Mist cooling
Water mist

OAR
$1500/hrs
Variable cost
$ 1 450,00
$ 1 254,00

Fixed Overhead cost
$ 4 500,00
$ 5 400,00

Total unit cost
$ 5 950,00
$ 6 654,00

Traditional Absorption Costing Income Statement per unit  

Mist cooling
Water cooling
Total
Selling Price [ unit cost X (1+0.10)]

$ 6 545,00
$ 7 319,40
$ 13 864,40
Unit cost

$ 5 950,00
$ 6 654,00
$ 12 604,00
Gross profit

$ 595,00
$ 665,40
$ 1 260,40

(b) ABC is an approach to costing that identifies individual activities as fundamental cost objects. It uses the cost of the activities as the basis for assigning costs to ultimate cost objects such as product or service. It also involves monitoring of activities which involves tracing resource consumption and costing of final outputs and it also uses some cost drivers as absorption basis. A cost driver is any factor that causes a change in the cost of an activity.

Benefits put forward for activity based costing is that more realistic costs of production are produced, also this system enables overheads to be traced to a product, The identification of costs from cost-driver analysis is helpful for budgeting within support departments and provides a more realistic approach and leads to sound decision making in the organization. Cost identification from cost driver analysis is helpful for budgeting within support department, also the availability of cost driver rates can be used as an input into the design of new products and modification to existing ones .The provision of costing information is viewed with much more confidence by relevant managers especially in overcoming some of the historic problems associated with cost allocation .Overally activity based costing helps management to make better informed decisions

ABC COSTING

COST POOLS

 
Setups
Material handling
Inspection cost

$ 8 780000,00
$ 1 500 400,00
$ 1 059 600,00

Cost driver
5000
12400
31440

23580

 
number of setups
number of movements
number of inspection

Cost Driver rate
$
1 756,00
$ 121,00
$ 33,70

 
per setup
per movement
per inspection

TOTAL FIXED OVERHEAD COST ELEMENTS

Mist cooling
Water cooling
Total

Setup Cost $1 756 /setup

$5 268000,00
$ 3 512 000,00
8780000

Material handling $121/movement

$750 200,00
$ 750 200,00
1500400

Inspection cost $33.70/inspection

$264 900,00
$ 794 700,00
1059600

$283 100,00
$ 5 056 900,00
11340000

Total Fixed overhead unit cost/unit

$6283100/996
$5056900/120

Fixed overhead cost per unit

$ 6 308,33
$ 3 981,81
$ 10 290,14

Add Variable unit cost

$ 1 450,00
$ 1 254,00
$ 2 704,00

Unit cost

$...

Bibliography: Charles T Horngen & Allan George Foster; Cost Accounting; 6th Edition; Prentice Hall
Frank Wood & Allan Sangster;2008; 11th Edition; Prentice Hall
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