Business Accounting Assignment : Sewing Easy Ltd
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Added on 2021-05-30
Business Accounting Assignment : Sewing Easy Ltd
Added on 2021-05-30
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1|PageBusiness AccountingContentsIntroduction................................................................................................................................2Task 1.........................................................................................................................................2Task 2.........................................................................................................................................3Task 3.........................................................................................................................................4Task 4.........................................................................................................................................6Task 5.........................................................................................................................................7Merits of ABC system............................................................................................................7Demerits of ABC system........................................................................................................9References................................................................................................................................12
2|PageBusiness AccountingIntroduction Activity based costing can be defined as the costing in which the activities are identified bythe firm and accordingly its indirect cost of the product. These indirect costs includes themanagement and office staff salaries, rent etc. these costs are find allocate to assign in themanufacturing sector. From ABC costing, allocation of indirect cost can be made easily. Thecompany Sewing Easy Ltd. is dealing in providing the manufacturing of sewing machines. Atpresent company is using the traditional costing system and machine hours for assigning theindirect cost. The Company can allocate its cost accurately and can reduce its per unit cost ofmachines using ABC costing. ABC costing establishes the relationship between the cost,activities, indirect cost and its products. The cost assigned in the ABC costing is low ascompared to the traditional costing. Task 1Cost per unit of the two models of sewing machines under the current traditional costingsystem.In the traditional method the allocation of overhead is done on the basis of the direct labour,the total cost will be divided by the total direct labour. In the traditional costing system, allthe cost whether it is direct or indirect cost are distributed in same way (Bartelsman,Haltiwanger and Scarpetta, 2013). No matter what the expense is. The cost allocation is doneon the basis of overall cost. No individual activity cost is distributed in traditional system ofcosting. The cost per unit in basic and advance model are as follows:Requirement (1): Cost per unit of the two models of sewing machines underthe current traditional costing systemOverhead recoveryrate 4,51,700.00 Machinehours8000Rate56.46
3|PageBusiness AccountingParticularsModels of machineBasic(in $)Advance($)Direct material 5,20,000.00 8,40,000.00 Direct labour 2,40,000.00 3,90,000.00 OverheadsMachine hours46003400Rate per hour56.46 56.46 Over heads allocated 2,59,727.50 1,91,972.50 Total cost 10,19,727.50 14,21,972.50 Total unit16001500Per unit cost 637.33 947.98 Task 2Cost per unit of the two models of sewing machines under Activity based Costing.Activity based costing is a costing methodology which identifies the different cost centres fordistribution of cost. Identifying the activities and distributing the cost of individual activitywith resources to all products and service department according to the actual consumptiondone by each department is the work of ABC costing (Chryssolouris, 2013). ABC system ofcosting assigns more indirect overheads into direct overheads as compared to the traditionalcosting. Requirement (2): 2) Cost per unit of the two models of sewing machines under Activitybased CostingParticularsModels of machineBasic(in $)Advance(in $)Direct material 5,20,000.00 8,40,000.00 Direct labour 2,40,000.00 3,90,000.00 Overheads
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