ABC v/s Traditional Costing

Running Head: ABC v/s Traditional Costing

ABC v/s Traditional Costing 1
Introduction:
The present case is the case of a company Danbake Ltd which is dealing in the bakery
business. The firm is operating as a medium sized business. The firm has been using
traditional costing approach to determine the cost of its products. The selling price of the
products is based on the cost determined for each unit of the product. However, to achieve
accuracy of its cost information, the firm is planning to adopt advanced management
accounting technique i.e. activity based costing which will allocate the overheads on the most
reasonable basis. The results under both the methodologies will be evaluated then to identify
which method provides better and realistic results.
Part 1
Cost determination under traditional costing
Overhead Allocation Park Pie Game Pie
Total production overheads $ 4,83,000.00 $ 3,22,000.00 $ 1,61,000.00
Total Batches 1050 (460*700) (460*350)
$ 460.00
Overhead Allocation Park Pie Game Pie
Raw Material $ 84,000.00 $ 63,000.00
Production Overheads $ 3,22,000.00 $ 1,61,000.00
Total Cost 406000 224000
No. of Batches 700 350
Total cost per batch $ 580.00 $ 640.00
Selling price per batch $ 1,160.00 $ 1,280.00
(580*2) (640*2)