Costing Analysis: Traditional and ABC Costing

Running Head: COSTING ANALYSIS
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Costing Analysis
Traditional and ABC Costing

COSTING ANALYSIS
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Table of Contents
Answer to Question-1................................................................................................................2
Answer to Question-2................................................................................................................4
Answer to Question-3................................................................................................................7
Analysis................................................................................................................................10
Importance of accurate product costing...............................................................................10
Answer to Question 4...............................................................................................................11
Answer to Question 5...............................................................................................................12
Bibliography.............................................................................................................................14

COSTING ANALYSIS
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Question-1
Particulars Direct
Material
cost per
unit
Direct
Labor
cost per
unit
Total
overhead
costs
other
overheads
Total units
produced
Cost
per
unit
Basic Model 595000 297500 160488 0 1052988 1700 619
Advanced
Model
928000 448000 119512 383500 1495512 1600 935
Traditional costing
Costing is by and large named as a movement of breaking the expenses into the individual
units and recognizes each expense cautiously. The main philosophy behind the investigation
and evaluation of the expenses is, because of the net profit and its impact on the performance
of the organization and finding a way to enhance the position. The two noteworthy strategies
utilized by the company are the conventional method of costing and the activity based costing
method. The main ideology behind the investigation of the costing is to determine the
overheads and to give an entire look of the costing to the investors interested in the buying
the products produced by the company. This helps the investors to make a feasible decision
and decide the relevancy of the product the investor is going to buy (Bennett and James,
2017).
It's vital for the company to perceive the potential expenses and the advantages related with
them and if the business fizzles at last the decisions are not in favour or not fruitful for the

COSTING ANALYSIS
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future health of the company. Additionally the cost examination assists in allowing a chance
to administer and get into the deep analysis of the funds and their spending.
Traditional costing also known as the conventional costing is the method of calculating the
costs to be allocated to the product. There are different techniques that are under process
required by the management and the accountants to make a legitimate administration of the
money related matters of the business. One such strategy is known as the traditional costing
framework. It is a strategy or technique under which the benefits are anticipated by deeply
analysing the profits incurred by the business and also after considering the circumstances
relevant to the indirect costs (Cooper, 2017).
Under the Conventional costing the allocation of the overhead is done by loading the
percentage of the overall overheads on the particular item or segment. The rate so calculated
is commonly the rate derived from the machine hours in comparison to the general rates and
the machine hours are treated as the baseline to calculate the overall factory overheads.
From the above table it can be stated that the cost per unit of the Sewing easy’s product that
is the basic model and the advanced model is $619 and $935. This can be seen in the first
table of the report and the same shall be considered under the traditional costing system
which the company is currently applying.
Question-2
Calculation of cost per unit under activity based costing method
Particulars Basic Model Advanced
Model
Direct Material cost per unit 350 580
Direct Labor cost per unit 175 280