Introduction:
Traditional Costing System: A cost accounting system records the production activities using a perpetual inventory system. Traditional costing allocates factory overhead to products based on the volume of production and resources utilised. Factory/manufacturing
Activity Based Costing System: Activity based costing as a method of costing was introduced to overcome the limitations of traditional costing system. Allocation and absorption of factory overheads using common parameters such as labour/machine hours result in inconsistencies. A manufacturing process is divided into various batches and activities. Not all the batches or stages of production are uniform. Different batches require different amount of human efforts or machine hours. Hence, activity based costing aims in identifying activities or production processes for producing a product. The individual activities are combined together with similar processes to form a cost pool. The pool is then analysed and assigned at a predetermined overhead rate that will be assigned to individual jobs and products.
(1)
To compute:
The predetermined overhead rate and the unit product costs using traditional costing system.
(2)
To compute:
The activity rate for each activity pool & amount of overhead applied to each model.
(3)
To compute:
a) The
b) The unit product costs of each model.
(4)
To ascertain:
The factor responsible for the company’s declining profits.
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Chapter 3 Solutions
MANAGERIAL ACCT W/CONNECT >IC<
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