Activity Based Costing vs Traditional/Absorption Costing

REPORT ON ACTIVITY BASED COSTING VS
TRADITIONAL/ABSORPTION COSTING

Answer 1,2,3& 4
Resource drivers consumed by activity centres
Cost categories (resource
drivers) Wages
Buildin
g costs
Depreciat
ion
Consu
mables Energy Other
Activity centres
(emplo
yees) (m2)
(machin
e hours)
(orders
)
(kilowatt
hours)
(emplo
yees)
New Product Development 115541 55610 0 559 2752 1027
Sales and distribution 404392 111220 0 1118 3302 3595
Inspecting 115541 111220 0 559 3302 1027
Mixing
109763
5 222439 304000 12294 41276 9757
Filling
109763
5 222439 385067 8941 63290 9757
Baking and Packing 866554 222439 70933 12294 41276 7703
Administration 404392 111220 0 1118 2752 3595
Corporate management 173311 83415 0 1118 1651 1541
Total quantity of resource drivers
across all activity centres
427500
0 1140000 760000 38000 159600 38000
Activities and resource drivers used - Inspecting
Activity
Percentage of
labour time
Percentage of
floor space
Percentage of
order placed
Ener
gy
Oth
er
Inspect Meat 34662 55609.8 0.0 1651 0
Disposal of Substandard
Meat 11554 11122.0 167.6 330 308
Move to Mincing Room 11554 11122.0 0.0 330 0
Inspect Finished Product 34662 11122.0 0.0 330 0
Disposal of Substandard
Product 11554 11122.0 167.6 330 308
Reports to Health Dept. 11554 11122.0 223.5 330 411
Total 115541 111220 559 3302
102
7

Activity
Activ
ity
cost Activity driver
Annual
quantity of
activity driver
Cost per unit
of Activity
Driver
Corporate
management
1733
11
Assigned directly
to products
Process
receivables
1978
33 No. of invoices 3800 invoices 52.0613
Process payables
1274
09
No. of purchase
orders 1900
purchase
orders 67.0574
Production
planning
1978
33
No. of production
schedules 760
productio
n
schedules 260.3066
Reports to Health
Dept
2364
0.6 No. of reports 76 reports 311.0599
Process sales
order
3344
38 No. of sales orders 3040
sales
orders 110.0125
Dispatch sales
order
1858
86 No. of dispatches 1900
dispatche
s 97.8347
New Product
Development
1155
41
Assigned directly
to new products
lines
Inspect Meat
9192
3.0 No. of batches 760 batches 120.9513
Disposal of
substandard
Meat
2348
2.0 No. of batches 760 batches 30.8973
Move to mincing
room
2300
6.2 No. of batches 760 batches 30.2713
Set up mincer
1218
61 No. of batches 760 batches 160.3434
Weigh and sort
ingredients
1218
61 No. of batches 760 batches 160.3434
Load mincer
9562
34 No. of kilograms 152000 kilograms 6.2910
Operate mincer
2326
00 No. of batches 760 batches 306.0526
Unload and
Clean mincer
1218
61 No. of batches 760 batches 160.3434
Move to mixing
room
1329
83 No. of batches 760 batches 174.9776
Set up scales
6649
2 No. of batches 760 batches 87.4895
Weight
Ingredients
1218
61 No. of batches 760 batches 160.3434
Load Mixer
2437
22 No. of batches 760 batches 320.6868
Operate Mixer
1144
457 No. of kilograms 152000 kilograms 7.5293
Clean Mixer
1329
83 No. of batches 760 batches 174.9776
Move Mixer to
Smoke house
7761
3 No. of kilograms 152000 kilograms 0.5106
Pack into skins
2741
74 No. of products 608000 products 0.4509
Setup
Smokehouse
9854
8 No. of trays 12160 trays 8.1043
Move to
Smokehouse
5438
5 No. of trays 12160 trays 4.4725
Smoke products
6728
51 No. of trays 12160 trays 55.3331
Unload
Smokehouse
5483
5 No. of trays 12160 trays 4.5095
Inspect finished
products
4611
4.3 No. of trays 12160 trays 3.7923

Activity
Activ
ity
cost Activity driver
Annual
quantity of
activity driver
Cost per unit
of Activity
Driver
Disposal of
substandard
product
2348
2.0 No. of trays 12160 trays 1.9311
Move to truck
6595
7 No. of trays 11550
Finished
trays 5.7106
Mettwurst
Activities consumed
Annual quantity of activity
driver
Corporate management 52379 Assigned directly to products
Process receivables 20824.5 invoices
Process payables 13411.5 purchase orders
Production planning 41649.1 production schedules
Reports to Health Dept 4977.0 reports
Process sales order 41804.8 sales orders
Dispatch sales order 29350.4 dispatches
New Product Development
Assigned directly to new products
lines
Inspect Meat 19352.2 batches
Disposal of substandard Meat 4943.6 batches
Move to mincing room 4843.4 batches
Set up mincer 25654.9 batches
Weigh and sort ingredients 25654.9 batches
Load mincer 191875.9 kilograms
Operate mincer 48968.4 batches
Unload and Clean mincer 25654.9 batches
Move to mixing room 27996.4 batches
Set up scales 13998.3 batches
Weight Ingredients 25654.9 batches
Load Mixer 51309.9 batches
Operate Mixer 229644.3 kilograms
Clean Mixer 27996.4 batches
Move Mixer to Smoke house 15573.7 kilograms
Pack into skins 54834.8 products
Setup Smokehouse 9887.2 trays
Move to Smokehouse 5456.4 trays
Smoke products 67506.4 trays
Unload Smokehouse 5501.5 trays
Inspect finished products 0.0 trays
Disposal of substandard product 0.0 trays
Move to truck 6966.9 Finished trays
Direct Materials 2
per kilogram
Assigned directly to products
Current Market Selling Price 9.0 per unit of product
Batch size 800
Annual Volume 122000
* All Calculations to 4 decimal
places