a) XYZ Ltd. Produces three products A, B and C for which the standard costs and quantities per unit are as follows: Particulars A B C Output (Units) 10000 20000 30000 Direct material cost per unit Rs60 Rs 40 Rs 20 Direct Labour cost per unit (@Rs 40) Rs 40 Rs 80 Rs 120 Machine hours per unit 3 2 1 Number of purchase requisitions 1000 200 300 Number of machine set-ups 150 100 50 Production overhead = P Rs 1400000 Q Rs 2200000 Department P is labour intensive, and Q is machine intensive. Total labour hours in Dept. P = 140000 and Total machine hours in Dept. Q = 100000 Production overhead by activity Receiving and Inspection Rs 1200000 Production scheduling/ set up= Rs 2400000 Prepare statement of cost per unit under traditional absorption method and activity-based costing approaches. Also compare the result of the two methods and give your comments. (b) Why is ABC (activity-based costing) model considered to be superior to the traditional method of costin
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
- (a) XYZ Ltd. Produces three products A, B and C for which the
standard costs and quantities per unit are as follows:
|
Particulars |
A |
B |
C |
|
Output (Units) |
10000 |
20000 |
30000 |
|
Direct material cost per unit |
Rs60 |
Rs 40 |
Rs 20 |
|
Direct Labour cost per unit (@Rs 40) |
Rs 40 |
Rs 80 |
Rs 120 |
|
Machine hours per unit |
3 |
2 |
1 |
|
Number of purchase requisitions |
1000 |
200 |
300 |
|
Number of machine set-ups |
150 |
100 |
50 |
|
|
|
|
|
Production
Q Rs 2200000
Department P is labour intensive, and Q is machine intensive.
Total labour hours in Dept. P = 140000 and Total machine hours in Dept. Q = 100000
Production overhead by activity
Receiving and Inspection Rs 1200000
Production scheduling/ set up= Rs 2400000
Prepare statement of cost per unit under traditional absorption method and activity-based costing approaches.
Also compare the result of the two methods and give your comments.
(b) Why is ABC (activity-based costing) model considered to be superior to the traditional method of costing?
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