Costing Analysis: Traditional and ABC Costing

Running Head: COSTING ANALYSIS
0
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 Basic Model Advance Model
Units Produced and sold 1700 1600
Direct Material cost per unit 350 580
Direct Labor cost per unit 175 280
Total 525 860
Calculation of cost per unit under traditional method
Particulars
Basic Model Advanced
Model
Direct Material cost per unit 595000 928000
Direct Labor cost per unit 297500 448000
Total overhead costs 160488 119512
other overheads 383500
Total 1052988 1495512
units produced 1700 1600
619 935
Traditional costing
Costing is the act of breaking down the costs and analysing the individual constituents and
preparing a report to be submitted to the management of the company. The analysis of the
costing is necessary to understand the impact of the costs on the earnings of the company and
rectifying the same if there is any need. The methods to measure the overhead costs are the
traditional method, activity based costing, prorated based costing. All the three methods have
been described in this report and a detail analysis is done in this report (Manunen, 2013).
Traditional costing is the method under which the factories overheads are allocate on the
basis of the volume of the total resources produced. Generally under this method the
overheads are assigned taking the labour hours or the machine hours as the base. Above is the

COSTING ANALYSIS
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table in which the cost per units is calculated by using the traditional method. The overhead
cost is calculated using the machine hours therefore the figure of $615 and $935 is arrived
after dividing the total indirect overhead costs by the machine hour. 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
Overhead costs per unit 52 120
Other operating Expenses 383500
Operating Expenses per unit 240
Total cost per unit a 577 1220
Working note of Overheads
Indirect Overheads
Cost
Estimated
cost Driver
Activity
Ove
rhea
d
Rate
Alloca
tion of
overh
ead
costs
Allocat
ion of
overhe
ad
costs
Inspection (hours) 30000 Inspection 970 31 210 6495 760 23505
Assembly (direct
machine hours)
10000
0 Assembly
820
0 12
470
0 57317 3500 42683
Production Scheduling
11000
0
Production
Scheduling 570 193 60 11579 510 98421
Machine set up 40000
Machine Set-
up 390 103 120 12308 270 27692
Total 87699 192301
Manufacturing
overhead cost**
Total overhead cost/ no
of units produced 52 120