ABC v/s Traditional Costing System
Added on 2020-05-11
10 Pages2451 Words265 Views
Running Head: ABC v/s Traditional costing systemCosting Techniques
ABC v/s Traditional costing system1Requirement 1Calculation of cost per meal for GoGo Airlines under traditional costing method and Activity based costing:Traditional costing:Costs Per Unit Vegan Meal Non-Vegan Meal Material Cost £ 10.00 £ 12.00 Labour Cost £ 8.00 £ 10.00 Overheads (W.N.1 ) £ 0.27 £ 00.27 Total Cost Per Unit £ 18.27 £ 22.27Note: As per conventional approach, the overall overheads are to be allocated to the vegan and non-vegan meals on the basis of machine hours required to produce each meal. The calculation of total machine hours as required by the airlines company are given in the working note below.Activity Based Costing:Costs Per Unit Vegan Meal Non-Vegan Meal Material Cost £ 10.00 £ 12.00 Labour Cost £ 8.00 £ 10.00 Overheads (W.N. 2) £ 0.35 £ 0.21 Total Cost Per Unit £ 18.35 £ 22.21 Working Note:For traditional costing:Total Overheads £ 200000 Total Number of Machine Hours 100000Overhead Per Hour = £ 200000 7500000* £ .027Machine Hours Per Unit 10Overhead Per Unit £ 0.27
ABC v/s Traditional costing system2*Machine Hours required Vegan Meals(300000*10)3000000Non-Veg Meals(450000*10)4500000Total Machine hours 7500000For activity based costingTotal OverheadsProportion £ 2,00,000.00 Set Up Costs20% £ 40,000.00 Inspections60% £ 1,20,000.00 Number Of Deliveries20% £ 40,000.00 Set-up cost per unit Total Set Up Cost £ 40,000.00 £ 66.67 Total Number of Set Ups 600Inspection cost per unitTotal Inspection Cost £ 1,20,000.00 £ 171.43 Total Number of Inspections 700Delivery cost per unitTotal Delivery Cost £ 40,000.00 £ 33.33 Total Number of Deliveries 1200Overhead allocation table:The figures are rounded off in the multiples of 5 to make the calculations simplifiedOverhead per unit:Total costVegan Meals Non-Vegan MealsSet Up Costs £ 6,665.00 (66.67*100) £ 33,335.00 (66.67*500)Inspections Costs £ 85,715.00(171.43*500) £ 34,285.00 (171.43*200) Delivery Costs £ 13,335.00(33.33*400) £ 26,665.00 (33.33*800)
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