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Implications of Adopting Traditional Costing Approaches and Activity Based Costing Approach

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Added on  2020-06-06

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But, in order to lower the costs, management accountant needs to opt appropriate methods in order to lower the cost in a proper manner (Franco- Santos, Lucianetti and Bourne, 2012).

Implications of Adopting Traditional Costing Approaches and Activity Based Costing Approach

   Added on 2020-06-06

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The Implications of AdoptingTraditional Costing Approaches andActivity Based Costing Approach
Implications of Adopting Traditional Costing Approaches and Activity Based Costing Approach_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 2............................................................................................................................................1CONCLUSION................................................................................................................................4REFERENCES................................................................................................................................5
Implications of Adopting Traditional Costing Approaches and Activity Based Costing Approach_2
INTRODUCTIONMany tools are there which are used in lowering a product’s cost. But, in order to lowerthe costs, management accountant needs to opt appropriate methods in order to lower the cost ina proper manner (Franco-Santos, Lucianetti and Bourne, 2012). Basically, in the ancient times,traditional methods were used in the business in order to make operations viable and effective.But such methods were entirely related to cost of production. Nowadays, managementaccountant uses advanced technique which is only helpful for lowering the costs but also help inframing strategy for the firm. TASK 2In the previous time, company uses traditional method for calculating product’s pricewhich was not so cost efficient. Later, various methods emerged in order to reduce the costeffectually (Kumar, Teichman and Timpernagel, 2012). This has been seen that the managementaccountant uses activity based costing technique for lowering the cost of production in the mostproficient manner. Here, under the given circumstances, cited company's managementaccountant uses ABC methodology in order lower the price of product to a great extent. UnderABC, production overheads are allocated into per unit cost in an effective manner thantraditional method. This is known as two step approach where overhead costs are allocated to theconcerned activities recognised as cost pool and after that, those allocated costs are assigned tothe product. Various costs will be assigned for goods which have been demanded for the similaractivity (Sekaran and Bougie, 2016). ABC mainly concentrates on the production activities. Theoperations of the firm cover various activities which includes complete overhead costs. Hence,this is anticipated to acquire a logical per unit cost at the end. Allocation of cost to two products:Activity Activity cost General cost Basic Advance Machine setup 200000100050000150000Material receiving 1200001.54500075000Inspection1600001007000090000Machinery related 84000014280000560000Engineering 28000040120000160000Total overhead costs for each product16000001155.556500010350001
Implications of Adopting Traditional Costing Approaches and Activity Based Costing Approach_3

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