Systems Concepts, Traditional versus Activity-Based Cost Accounting Systems The following items are associated with a traditional cost accounting information system, an activity-based cost accounting information system, or both (that is, some elements are common to the two systems): Required: 1. Select the appropriate categories for each of the following items: a. Usage of direct materials b. Direct materials cost assigned to products using direct tracing c. Direct labor cost incurrence
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.
Systems Concepts, Traditional versus Activity-Based Cost Accounting Systems
The following items are associated with a traditional cost
Required:
1. Select the appropriate categories for each of the following items:
| a. | Usage of direct materials | |
| b. | Direct materials cost assigned to products using direct tracing | |
| c. | Direct labor cost incurrence | |
| d. | Direct labor cost assigned to products using direct tracing | |
| e. | Setup cost incurrence | |
| f. | Setup cost assigned using number of setups as the activity driver | |
| g. | Setup cost assigned using direct labor hours as the activity driver | |
| h. | Cost accounting personnel | |
| i. | Submission of a bid, using product cost plus 25 percent | |
| j. | Purchasing cost incurrence | |
| k. | Purchasing cost assigned to products using direct labor hours as the activity driver | |
| l. | Purchasing cost assigned to products using number of orders as the activity driver | |
| m. | Materials handling cost incurrence | |
| n. | Materials handling cost assigned using the number of moves as the activity driver | |
| o. | Materials handling cost assigned using direct labor hours as the activity driver | |
| p. | Computer | |
| q. | Costing out of products | |
| r. | Decision to continue making a part rather than buying it | |
| s. | Printer | |
| t. | Customer service cost incurred | |
| u. | Customer service cost assigned to products using number of complaints as the activity driver | |
| v. | Report detailing individual product costs | |
| w. | Commission cost | |
| x. | Commission cost assigned to products using units sold as the activity driver | |
| y. | Plant |
|
| z. | Plant depreciation assigned to products using direct labor hours |
2. The differences between the activity-based and traditional systems are found primarily in the:
3. Select the appropriate items under the following categories to form operational model that illustrates each cost accounting system—with the items that belong to the system used as examples for each component of the model.
| Operational Model: Traditional Cost Accounting System | ||
| Inputs Costs of: |
Processes | Output |
| Direct tracing: | ||
| Allocation: | ||
| Feedback | Actions | Evaluation |
| Users | ||
| Bidding decision, Make-or-buy decision | ||
| Operational Model: ABC Cost Accounting System | ||
| Inputs Costs of: |
Processes | Output |
| Direct tracing: | ||
| Allocation: | ||
| Drive tracing: | ||
| Feedback | Actions | Evaluation |
| Users | ||
| Bidding decision, Make-or-buy decision |
4. Based on the operational models, comment on the relative costs and benefits of the two systems. Which system should be chosen?
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