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Traditional Costing Approach - Doc

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Added on  2021-06-18

Traditional Costing Approach - Doc

   Added on 2021-06-18

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RUNNING HEAD: MANAGEMENT ACCOUNTINGMANAGEMENT ACCOUNTING
Traditional Costing Approach - Doc_1
MANAGEMENT ACCOUNTING1ContentsINTRODUCTION.....................................................................................................................................2Purpose.............................................................................................................................................2Significance of two costing methods.................................................................................................2DISCUSSION...........................................................................................................................................2Traditional costing approach.............................................................................................................2Activity based costing approach........................................................................................................6COMPARISON AND DIFFERENCES OF PRODUCT COSTS CALCULATED UNDER TRADITIONAL AND ABC SYSTEM....................................................................................................................................11CONCLUSION.......................................................................................................................................12COST VERSUS BENEFITS OF ABC SYSTEM.........................................................................................12OTHER FACTORS OF ABC SYSTEM....................................................................................................13REFERENCES........................................................................................................................................14
Traditional Costing Approach - Doc_2
MANAGEMENT ACCOUNTING2INTRODUCTIONPurposeThe Happy Traveller limited is a manufacturing company which manufactures two types of luggage such as ‘simple luggage’ and ‘complex luggage’. The purpose of this report is to perform traditional costing approach and Activity based costing approach in Happy traveller limited. The report further explains the significance of both costing approaches. The costs perunit of both products from both approaches are computed and on the basis of costs per unit comparison will be performed. Benefits and costs in adopting ABC approach in Happy traveller limited is analysed. Significance of two costing methods Traditional costing approach assigns cost on the basis of single or average overhead rate. In other words, all the overhead costs applied equally to all the products by usingone cost driver normally machine hours (Eldenburg and Wolcott, 2009). It is reasonable to implement. It is also very easy to use and simple to understand by the outsiders.Activity Based Costing approach assigns indirect expenses (manufacturing overhead) to the products based on its consumption of each activity. In other words, all the overhead costs applied to the products by using multiple cost drivers. This approach isvery expensive to implement but the results are more accurate. This method is very useful for manufacturing companies having high overhead costs (Helmi, 2015).DISCUSSIONTraditional costing approach Allocation of manufacturing overhead costs as per simple costing systemProduction centresmachine centre A, machine centre B and Assembly centreService centresmaterials procurement and general factorysupportParticularsMachine centre AMachine centre BAssembly centrematerials procurementgeneral factory support
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MANAGEMENT ACCOUNTING3Indirect wages and supervision $ 14,61,538.46 $ 8,76,923.08 $ 14,61,538.46 $ 21,00,000.00 $ 18,80,000.00 Total costs = $ 3800000total hours = 5200000Indirect materials $ 6,50,000.00 $ 4,87,500.00 $ 1,62,500.00 $ - $ 20,000.00 Total costs = $ 1300000material issued = $ 4000000, $ 3000000 and $ 1000000 for Machine centre A, B and assembly centre respectivelyLighting and heating $ 95,192.31 $ 84,615.38 $ 1,26,923.08 $ 1,58,653.85 $ 84,615.38 Total costs = $ 550000Area occupied = 52000 square metreproperty taxes $ 1,47,115.38 $ 1,30,769.23 $ 1,96,153.85 $ 2,45,192.31 $ 1,30,769.23 Total costs = $ 850000Area occupied = 52000 square metreinsurance of machinery $ 1,31,578.95 $ 90,460.53 $ 13,157.89 $ 6,578.95 $ 8,223.68 Total costs = $ 250000BV of machinery = $ 15200000Depreciation of machinery $ 8,42,105.26 $ 5,78,947.37 $ 84,210.53 $ 42,105.26 $ 52,631.58 Total costs = $ 1600000BV of machinery = $ 15200000Insurance of buildings $ 51,923.08 $ 46,153.85 $ 69,230.77 $ 86,538.46 $ 46,153.85 Total costs = $
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