Accounting is basic of the business and without the accounting; it is not possible to run the business in the effective manner. Accounting determines the rules and regulations that determine the ways to record the financial transaction. In this way, the main aim of this report is to enhance the knowledge and understanding on the accounting.
This report is also significant in the context of developing the understanding the on the traditional costing system and activity based costing system. This report also helps to identify the main deference in the activity based costing and traditional costing.
Answer 1, 2, 3 and 4
|Resource Cost Categories and Resource Drivers|
|Cost (All Calculations to 4 decimal places)|
From the overall discussion, it can be determined that the wages 74,81,250 of the firm is and building cost of the firm is that shows that it is high as compared to the all.
At the same time, consumable is 590 that are better also. As well as, there are other costs that are occurred due to the energy and some other internal expanses also. In like manner, the total cost of the firm is1,07,96,800 that is occurred after doing calculation of the overall cost and expenses.
|Cost categories (resource drivers)||Wages||Building costs||Depreciation||Consumables||Energy||Other|
|Activity centres||(employees)||(m2)||(machine hours)||(orders)||(kilowatt hours)||(employees)|
|Sales and distribution||130000||7000000||0||100000||120000000||130000|
|Moulding and packaging||260000||1,4000000||13000000||2000000||2700000000||260000|
|Total quantity of resource drivers across all activity centres||1290000||7,0000000||132000000||5900000||10040000000||129|
From the overall table, it can be determined that there are different categories such as wages, building cost, depreciation, consumables and the energy.
At the same time, there are also some categories such as blending, moulding and packaging, product development, sales and distribution, corporate management and many more. The wages are also different from the other also. So, it can be determined that there is the variation in the cost and the difference also.
|Activities and resource drivers used – Blending|
|Activity||Percentage of labour time||Percentage of floor space||Percentage of machine hours||labour time||floor space||machine hours|
|Set up blender||10%||5%||0%||1121855||56092750%||0|
|Weigh and sort ingredients||10%||5%||0%||1121855||56092750%||0|
|Unload and Clean blender||10%||5%||0%||1121855||56092750%||0|
|Move to filling room||10%||10%||0%||1121855||112185500%||0|
This graph is presents the various activities such as inspect filling ingredients, disposal of substandard filling, move to mixing room, and inspect finished products, disposal of substandard product, reports to health dept.
At the same time, these activities are calculated in term of parentage of labour, percentage of floor space, percentage of machine hours, energy, consumable and others.
From the above finding are it can be stated that the percentage of labour time is 557419.3548 however, floor of space is n 186268.6567. In regards to disposal of substandard filling activity disposal of substandard filling is 185806.4516 and consumables is 6400.
The labour of percentage of percentage time is similar for Disposal of substandard filling, Move to mixing room, Disposal of substandard product and Reports to Health Dept.
Also, Percentage of floor space is also similar for all of the activities apart from Inspect filling ingredients. In addition consumable are same for disposal of substandard filling and Disposal of substandard product that is 6400.
However, estimated energy Disposal of substandard filling and Disposal of substandard product. The table shows that the percentage of machine is equal for Disposal of substandard filling and Disposal of substandard product and it varies for Reports to Health Dept.
Also the Consumable estimation is zero (0) for inspect filling ingredients, Move to mixing room and Inspect finished products. Thus, it can be stated that some of the activities are similar for their resource driving indicators and some are varied. Also, the energy and labour time reflect the high number.
|Activity||Activity cost||Activity driver||Annual quantity of activity driver||Cost per Driver|
|Corporate management||$3,47,965||Assigned directly to products|
|Process receivables||$3,86,065||No. of invoices||6,700||invoices||$58|
|Process payables||$3,65,837||No. of purchase orders||3,300||purchase orders||$111|
|Production planning||$2,13,261||No. of production schedules||1,330||production schedules||$160|
|Reports to Health Dept||$31,652||No. of reports||1,330||reports||$24|
|Process sales order||$6,16,652||No. of sales orders||5,320||sales orders||$116|
|Dispatch sales order||$3,44,601||No. of dispatches||3,300||dispatches||$104|
|Product Development||$1,73,983||Assigned directly to new products lines||$0|
|Inspect ingredients||$1,34,856||No. of batches||1,330||batches||$101|
|Disposal of substandard ingredients||$31,652||No. of batches||1,330||batches||$24|
|Move to mixing room||$31,652||No. of batches||1,330||batches||$24|
|Set up blender||$36,524||No. of batches||1,330||batches||$27|
|Weigh and sort ingredients||$25,468||No. of batches||1,330||batches||$19|
|Load blender||$21,556||No. of kilograms||2,66,000||kilograms||$0|
|Operate blender||$22,458||No. of batches||1,330||batches||$17|
|Unload and Clean blender||$22,42,211||No. of batches||1,330||batches||$1,686|
|Move to filling room||$35,455||No. of batches||1,330||batches||$27|
|Set up scales||$1,16,491||No. of batches||1,330||batches||$88|
|Weigh ingredients||$2,13,032||No. of batches||1,330||batches||$160|
|Load boiling vats||$4,26,064||No. of batches||1,330||batches||$320|
|Coagulate, Drain and Scald||$19,95,737||No. of kilograms||2,66,000||kilograms||$8|
|Drain and clean vats||$2,32,982||No. of batches||1,330||batches||$175|
|Move to moulding room||$1,36,441||No. of kilograms||2,66,000||kilograms||$1|
|Load hopper||$4,80,063||No. of products||10,64,000||products||$0|
|Set up moulds and packaging||$1,72,075||No. of trays||21,280||trays||$8|
|Move to moulder||$96,013||No. of trays||21,280||trays||$5|
|Mould products and package||$11,88,764||No. of trays||21,280||trays||$56|
|Unload moulder||$96,013||No. of trays||21,280||trays||$5|
|Inspect finished products||$55,056||No. of trays||21,280||trays||$3|
|Disposal of substandard product||$31,652||No. of trays||21,280||trays||$1|
|Move to truck||$1,15,963||No. of trays||20,220||Finished trays||$6|
|* All Calculations to 4 decimal places||“??” indicates that these figures must be calculated.|
The findings of the schedule 4 shows that the activity cost if the corporate management is $3,47,965. Moreover, it is also found that process receivable cost per driver is 58 per unit.
The cost of the process payable is calculated is 111 and production planning cost per unit is calculated 16. Report to health depth 24 and process sales order value is calculated 104. Inspect ingredients cost per unit is also calculated by 101 per unit.
The value of the Disposal of substandard ingredients is found 31,652 and the number of the annual quantity 1330. At the same time, it is also found that Move to mixing room is recorded by 31652 and the quantity value is 1330 and per unit price 24.
Set up blender value is found 36,524 and per unit cost is calculated by 27. Load blender and Operate blender are calculated by 22,458 and 22,42,211 and per unit cost are following 17 and 1,686. In the additional of this, it is also determined that Move to filling room per unit cost is $27 and Set up scales cost is 88.
|Activities consumed||Annual quantity of activity driver|
|Corporate management||$93,882||Assigned directly to products|
|Process payables||300||purchase orders|
|Production planning||170||production schedules|
|Reports to Health Dept||170||reports|
|Process sales order||670||sales orders|
|Dispatch sales order||500||dispatches|
|Product Development||$0||Assigned directly to new products lines|
|Disposal of substandard ingredients||170||batches|
|Move to mixing room||170||batches|
|Set up blender||170||batches|
|Weigh and sort ingredients||170||batches|
|Unload and Clean blender||170||batches|
|Move to filling room||170||batches|
|Set up scales||170||batches|
|Load boiling vats||170||batches|
|Coagulate, Drain and Scald||53,250||kilograms|
|Drain and clean vats||170||batches|
|Move to moulding room||53,250||kilograms|
|Set up moulds and packaging||2,130||trays|
|Move to moulder||2,130||trays|
|Mould products and package||2,130||trays|
|Inspect finished products||–||trays|
|Disposal of substandard product||–||trays|
|Move to truck||2,130||Finished trays|
|Direct Materials||$3||per kilogram|
Assigned directly to products
|Current Market Selling Price||$9||per unit of product|
|Activities consumed||Annual quantity of activity driver|
|Corporate management||$11,460||Assigned directly to products|
|Process payables||100||purchase orders|
|Production planning||70||production schedules|
|Reports to Health Dept||70||reports|
|Process sales order||200||sales orders|
|Dispatch sales order||100||dispatches|
|Product Development||$88,348||Assigned directly to new products lines|
|Disposal of substandard ingredients||60||batches|
|Move to mixing room||60||batches|
|Set up blender||60||batches|
|Weigh and sort ingredients||60||batches|
|Unload and Clean blender||60||batches|
|Move to filling room||60||batches|
|Set up scales||60||batches|
|Load boiling vats||60||batches|
|Coagulate, Drain and Scald||13,000||kilograms|
|Drain and clean vats||60||batches|
|Move to moulding room||13,000||kilograms|
|Set up moulds and packaging||540||trays|
|Move to moulder||540||trays|
|Mould products and package||540||trays|
|Inspect finished products||540||trays|
|Disposal of substandard product||540||trays|
|Move to truck||520||Finished trays|
|Direct Materials||$4||per kilogram|
Assigned directly to products
|Current Market Selling Price||$13||per unit of product|
As per the given schedule 6, it is identified that it includes the different activities that were consumed by the firms and annual quantity of activity driver. In this table, it is identified that corporate management assigned $11,460 directly to products.
This amount is competitively lower from schedule 5. In addition, product development assigned $88,348 directly to new products lines and direct materials assigned $4 per kilogram directly to products.
Current market selling price is $13 per unit of product. In addition to this, it can also be said that process receivables include 200 invoices and process payables include 100 purchase orders in this schedule. The overall annual volume will be 26,000 for this schedule.
The process sales order is 200 units in this schedule that are competitively higher than dispatch sales order because it has 100 dispatches. There are 60 batches in the inspect ingredients, disposal of substandard ingredients, set up the blender, move to mix room and weigh and sort ingredients in the consuming activity.
In addition to this, there are some other things that also includes 60 batches such as operate a blender, unload and clean blender, move to fill room, set up scales, weigh ingredients and load boiling vats.
Moreover, it is seen in schedule 6 that coagulate, drain and scald have 13,000 kilograms as well as a move to molding room also have 13,000 kilograms. The loading hopper includes 26,600 products in the schedule. However, it can be said that the activitybased costing is effectively scheduled in the provided table.
On the basis of the traditional and activity based costing, it is found that there is big difference in the allocation of the overhead cost. At the same time, it is also found that there is different base in the allocation of the cost.
|Computation of Traditional Cost|
|Particular||Traditional Costing||Activity Costing||Difference|
|Total Indirect Cost||156000|
|Total Annual Units produced||26000|
|Per Unit Indirect Cost||6|
|Cost For Custard Tart||78000||112563||34563|
|Cost for Digitalgen||234000||265242||31242|
Following are the reason of difference in cost
- Increment in the salary leads to increase in the product cost
- Inflection is also a reason of the increasing the production cost
- Increase in the material cost also increase production cost
- A increase in the electricity cost (Malmi, 2016)
Traditional costing system and Activity based costing system
The traditional costing system and activity based costing system both are different. Traditional cost system is simple and activity cost system is complex. In this, it is also found that traditional cost system is old method of the accounting.
According to this method, factory overhead are allocated as concerning of the products. In this, basically cost applied on the machine hours and labor hours. In this, it is also asked that overhead cost first related different department then the products (Chenhall & Moers, 2015).
Beside of this, activity cost method is new compared to traditional costing system. In this system, many activities and cost pools are centres are created to reflect difference activities. This cost method is helpful for the large manufacturing companies where it is easy to define the different activities cost separately (Otley, 2016).
The traditional cost system determines an additional part of overhead as compared to direct cost that help to measure the total cost the product. In this system, cost is only allocated for the production and non production cost only. Beside of this, activity cost system is known as the more accurate costing system as compared to traditional costing method (Cooper, 2017).
As increasing the theoretical knowledge and understanding on the traditional costing method and activity based costing system, it can be said that due to nature of the measuring the cost, there is big difference in the costing of given case study (Kaplan & Atkinson, 2015).
From the above points, it can be said that there is one rate for overhead allocation for the complete operations of the business in traditional costing approach. Thus, presence of one rate makes the traditional costing an easier approach for its implementation.
On the other hand, there is multiple cost pool in costing in activity based approach which makes it a complex process and also increase its level of implementation.
On the positive side, the Activity-based costing is useful to give detailed measures of costs as compared to the traditional costing method.
At the same time, this costing method can be useful for the company in giving them a more precise product cost number to assist in forming correct decision with regards to pricing and also towards production for cost information of each activity.
This would be effective for identification of cost-causing activities and management of production cost but it will require more effort in its record-keeping.
In addition to above, it is mentioned that traditional accounting includes the average of the several overhead rate in concern of the direct costs which is specifically for the manufacturing products.
In this manner, it is also reflected that under this system, the overhead rates are applied on the behalf of the cost driver like the number of labour hours that are required for making the product at initial level. It is proved best for the company at the time of having low overheads of the company as compared to direct costs related to the production.
With the help of the traditional cost system, the owner of the company gets the accurate facts and figures in concern of the costs while having the large production volume.
At the same time, under the activity based costing system, all the specified overheads operations are connected with the manufacturer of each the product.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost management. Routledge.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.
Chenhall, R. H., & Moers, F. (2015). The role of innovation in the evolution of management accounting and its integration into management control. Accounting, organizations and society, 47, 1-13.
Malmi, T. (2016). Managerialist studies in management accounting: 1990–2014. Management Accounting Research, 31, 31-44.