assignment - consolidated

assignment - consolidated - 1. ALLOCATION BASE USED FOR...

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1. ALLOCATION BASE USED FOR NON- JOB-RELATED COSTS Average Cost Average Cost Per Tax Job Average Cost Current sing cost-driver system $38,770.17 $10,260.44 $18,514.12 ABC system with multiple cost drivers $34,557.57 $11,999.31 $18,526.94 Difference (Current less ABC) $4212.60 ($1738.87) ($12.82) Refer to Appendix I for calculations 2. Traditional cost accounting methods is different from the activity-based cost (ABC) methods on many levels. As a result of their differences, the average costs per job that we calculated, using both methods differed. For the average cost per A&A job, the traditional method had a greater cost of $38,770.17 per job compared to the ABC method’s cost of $34,557.57 per job, making a difference of $4,212.60 per job. For the Tax jobs, the traditional method’s cost of (-) $10260.44 compared to the ABC method’s cost of $11,999.31 per job resulted in a negative difference of $1,738.87 per job. Lastly, the average cost per V&F job also had a negative difference of (-) $12.83 per job. There are three main reasons for these differences to have occurred. One being that the traditional costing allocates all manufacturing overhead to products. ABC costing only assigns manufacturing overhead costs consumed by those products. For instance, you can see from the calculations sheet that all the overhead is lumped under the “non-job related costs” in the traditional system, unlike in the ABC system where the manufacturing overhead is allocated to the different cost pools (CPE, Administrative, Client Development, and Unassigned) and used to calculate different activity rates which are then used to calculate the overhead more specifically for the three jobs. Another reason that these differences occurred is due to the fact that traditional costing allocates all manufacturing overhead costs using a volume-related allocation base. On the other hand, ABC costing uses non-volume related allocation bases. Lastly, the traditional costing disregards selling and administrative expense because they are assumed to be period expenses. 1
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However, ABC costing directly traces shipping costs to products and includes non-manufacturing overhead costs caused by products in the activity cost pools that are assigned to products. All these calculation differences can be seen in the calculation sheet. 3. As a result of the differences and with careful analysis, we have deduced that the proposed ABC
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This note was uploaded on 04/02/2009 for the course BUAD 250B taught by Professor Jackson during the Spring '07 term at USC.

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assignment - consolidated - 1. ALLOCATION BASE USED FOR...

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