Comparison of Traditional Costing Method and Activity-Based Costing Method for Sewing Easy Ltd

Introduction to accounting

Table of Contents
Introduction................................................................................................................................4
Question 1..................................................................................................................................5
Calculation as per traditional costing method........................................................................5
Question 2..................................................................................................................................5
Calculation as per activity base costing model......................................................................5
Question 3..................................................................................................................................6
Statement of profit and loss as per Traditional method as well as ABC method...................6
Question 4..................................................................................................................................7
Question 5..................................................................................................................................9
Advantages of Activity Based Costing..................................................................................9
Disadvantages of Activity Based Costing............................................................................10
Conclusion................................................................................................................................10
References................................................................................................................................12

List of tables
Table 1: Statement presenting per unit cost of basic model and advance model.......................4
Table 2 Statement presenting per unit cost of basic model and advance model........................4
Table 3 Profit and loss statement of advance model..................................................................5

INTRODUCTION
Traditional costing method assigns factory overheads on the basis of the volume of the
resources consumed. In this method, the overheads are generally applied on the basis of either
the amount of the direct working hours consumed or on the hours the machine was used. This
costing method is less complex than any other method such as activity-based costing which
measures the cost of every product or service which is based on the particular expenses
indulge in it (Weygandt, Kimmel, and Kieso, 2015). Present report revolves around the
assessment of traditional costing method and activity-based costing method with regard to
Sewing Easy Ltd. The assessment of both the methods is being done in order to assess the
reason behind the interest of overseas purchaser in buying the advance model manufactured
by the company.
QUESTION 1
Table 1: Statement presenting per unit cost of basic model and advanced model
Calculation as per traditional costing
method (Amount in
$)
Basic model Advanced model
Cost per
unit Total cost
Cost per
unit
Total
cost
Direct material 325.00 560.00
Direct labour 150.00 260.00
Total allocated overhead costs 57.16
91463.414
63 105.69
158536.
59
Other cost related to a specific
department
Selling and administration 93.73 140600
Interest expense 16.80 25200
Office rent 23.93 35900
Total cost 532.16 1060.16
QUESTION 2
Table 2 Statement presenting per unit cost of basic model and advanced model