Overhead cost per direct labor cost X per unit direct labor cost
Accounting Essay 代写 作业成本法是一种成本核算概念
For hollow balls: 0.42 X 0.39=0.16 overhead per unit
For solid balls : 0.71 X 0.64=0.45 overhead per unit
A comparison of the overhead per unit calculated using the ABC and traditional methods often shows a different result:
Craze Ball Company 20X0 Overhead per Unit
ABC method(RM)
Traditional method (RM)
Hollow Ball
0.39
0.16
Solid Ball
0.64
0.45
In this example, the overhead charged to the hollow ball using ABC is RM0.39 and much higher than the RM0.16 calculated under the traditional method. The RM0.39 is a more accurate cost for making decisions about pricing and production. For the solid center ball, the overhead calculated is RM0.64 per unit using ABC method and RM0.45 per unit using traditional method. The reason for the differences is the traditional method determines the cost allocation using direct labor costs only. Hence, a product with high direct labor costs will allocate more of the overhead costs than a product with low direct labor costs. The number of orders, setups, or tests the product actually uses does not affect the allocation of overhead costs when direct labor dollars are used to allocate overhead.
Section 5: Conclusion
In conclusion,ABC is an approach that helps us in an organization when we make decision. On the other hand, it also has the limitations of the ABC approach. Besides that, according to Mr. Ian(2003), the volume of the product are not related to some activities , by using cost drivers that are independent of volume.
He stated that three major categories are divided at the product level:
Unit level
Batch-related
Product sustaining
Product costs are accumulated by these categories.
Facility-sustaining expenses (Head Office, PR etc) are incurred to support the entire firm, therefore it is a common and joint activity .Hence, they should not be assigned to the product's cost.
ABC systems are models of resource consumption in an organization but not spending in the firm. The total organizational resources required to produce a good, or perform a service (for example, the product) by using the ABC systems.
It is important to emphasize that ABC systems identified priorities for managerial attention and not to provide the basis of decisions relevant to costs by themselves.
Perhaps,it is not only provides the basis on the product costs that calculates accurately, but it also manages overhead costs in general so the ABC systems have attracted many people of the Accountancy Profession. Moreover, it is probable to understand and manage costs more effectively by collecting and reporting on the significant activities in which a business engages. By the way,it is in the area of cost management, where Activity Based Costing may have its greatest potential. ABC system was first developed more than ten years and some firms go to the extent of implementing this approach to establishing more realistic costing for their products and services.
Fortunenately, we feel familiar about the topic because in the previous trimester we had learned about the topic. However, the more challenge part is we had gone through the journals by finding via website or in library online database. In the process, many journalists, specialist of accounting fields had done their research by using ABC system on their industry such as universities, manufacturing companies and hospitals .In addition, we had searched about the ABC that is implemented in the other way. Therefore, the examples we are given is slightly different from the textbook that we learned.
The part 4 example, which mentioned that ABC provides a way to allocate costs more accurately when overhead costs are not incurred at the same rate as direct labor costs. Thus, the more activities identified the more complex the costing system becomes. Computer systems are necessary for complex ABC systems.On the other hand, to keep it manageable,some companies may limit the number of activities. Yet this approach may have some allocations in being arbitrary.Thus, ABC provides a more accurate estimate of costs in making management decisions.
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