COSTING ANALYSIS 1 Answer to Question-2 4 Answer to Question-3 7 Analysis 10 Importance of accurate product 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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Answer to 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
There are various methods that are under process by the accountants and the book keepers to
make a proper management of the financial aspects of the business. One such method is
known as the traditional costing system. It is an accounting method under which the profits
are predicted by taking into account the cause and effect relationship of the direct as well as
the indirect costs of the business (Mahal and Hossain, 2015).
Costing is generally termed as an activity of breaking the costs into the individual units and
the individual report is prepared in detail to identify each cost carefully. The basic ideology
behind the analysis of the costs is there overall impact on the net profit of the company and
taking immediate and the necessary steps to improve the position. The two major methods
used are the traditional method, activity based costing method one more new method that
have been introduced is the proration method for the purpose of allocation of the overhead
cost. The analysis of the costing is necessary as helps in the decision making and ease down

COSTING ANALYSIS
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the complex transactions into the simpler ones. It’s necessary of the business to recognise the
potential costs and the benefits associated with them and if the business fails it results into the
sub optimal decisions ultimately. Also performing the cost analysis helps in giving an
opportunity to the management to dive into the specifics of the particular funds required to
spend on the product. The act of defining and the identification of the costs is a technical one
and it reduces time and energy of the employees (Bennett and James, 2017).
Traditional costing is the method where the cost of the overhead is calculated by loading the
percentage of the total overhead costs to the particular and the significant component. The
percentage so arrived is generally the percentage of the machine hours as compared to the
overall percentages and therefore the machine hours are treated as the base for the purpose of
the calculation of the factory overhead (Xu, Frankwick and Ramirez, 2016).
The first table represent the calculation of the cost per unit of the Sewing Easy under the
traditional method. For the purpose of the calculation of the overhead costs the machine
hours are made as the base and thereafter the figure of the overhead calculation is arrived at
60 and 80 respectively for the basic as well as the advanced model (Cooper, 2017).
Further the second table displays the cost per unit taking into consideration the cost of the
direct labour materials per unit and the labour per unit (Patiar, 2016).
Answer to 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