Assignment4

Activity Based Costing V/S Traditional Costing
Contents
Question 1:    3
a)    3
b)    4
c)    4
d)    5
e)    6
f)    7
Question 2:    8
a)    8
b)    8
c)    9
References:    10
Question 1:
a)
    Manufacturing Cost per unit under Simple Costing System:
    
    
    
    
    Particulars
     
    Job 410
    Job 411
    Direct material cost per job
     
    $9,700
    $59,900
    Direct manufacturing labor cost per unit
     
    $750
    $11,250
    Manufacturing overhead
     
    $2,875
    $43,125
    Total manufacturing cost
     
    $13,325
    $114,275
    Units
     
    10
    200
    Manufacturing cost per unit
     
    1,332.50
    571.38
b)
    Activity Rates under each Activity Areas:
    
    
    
    
    
    Activity Areas
    Activity Drivers
    Budgeted MOH
    Budgeted Activity
    Activity Rates
    Materials Handling
    Parts
    $16,000
    40000
    $0.40
    Lathe Work
    Lathe turns
    $20,000
    100000
    $0.20
    Milling
    Machine Hours
    $50,000
    2500
    $20.00
    Grinding
    Parts
    $24,000
    30000
    $0.80
    Testing
    Units Tested
    $7,500
    500
    $15.00
c)
    Manufacturing Cost per unit under Activity Based Costing System:
    
    
    
    
    Particulars
     
    Job 410
    Job 411
    Direct material cost per job
     
    $9,700
    $59,900
    Direct manufacturing labor cost per unit
     
    $750
    $11,250
    Materials Handling Cost
     
    $200.00
    $800.00
    Lathe Work Cost
     
    $4,000.00
    $12,000.00
    Milling Cost
     
    $3,000.00
    $21,000.00
    Grinding Cost
     
    $400.00
    $1,600.00
    Testing Cost
     
    $150.00
    $3,000.00
    Total manufacturing cost
     
    $18,200
    $109,550
    Units
     
    10
    200
    Manufacturing cost per unit
     
    $1,820
    $547.75
d)
Per unit cost in simple costing system for job 410 is $1332.50 and for job 411 is $571.38. Per unit cost of job 410 is greater than that of job 411 because of the number of units produced. The cost that is incurred for 10 units in job 410 is very high as compared to job 411. Per unit cost in activity based costing system for job 410 is $1820 and for job 411 is $574.75. Similar to simple costing the cost is high for job 410 because of procurement of materials at a higher rate and various other cost. But if we look at the cost that are calculated using both the methods than for both the jobs per unit cost derived using the activity based costing is higher as compared to simple costing still we would say that activity costing is better as the activity cost which is higher can be identified and controlled using proper methods and techniques.
Under simple costing method:
    Total manufacturing cost
     
    $13,325
    $114,275
    Units
     
    10
    200
    Manufacturing cost per unit
     
    1,332.50
    571.38
Under activity based costing method:
    Total manufacturing cost
     
    $18,200
    $109,550
    Units
     
    10
    200
    Manufacturing cost per unit
     
    $1,820
    $547.75
e)
The...