5.46 - a The traditional costing system of allocating...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ( a ) The traditional costing system of allocating overhead on the basis of labour Rs. Basis as currently used by XYZ Ltd. Fails to give a realistic picture of how the company uses its resources.For more accurate costing of activities,specially in a multi-product manufacturing company, the accountant may resort to activity based costing szstem in which all of the costs have the same or a similar cause-and-efect ( or benefits received ) relationship with the cost allocation base. XYZ in its existing costing szstem muses direct manufacturing labour costs at the cost-allocation base for all overhead costs, whether in set up, receiving,engineering and/or packing.Direct manufacturing labour cost do not drive the costs in these activity -coat pools.So, measuring the direct manufacturing labour costs incurred on various products does not capture the overhead costs demanded by the dofferent products.In answer to Question 3( b ) below, the unit costs of the three products A,B,C, as calculated under the ABC approach show a more accurate...
View Full Document

This note was uploaded on 02/29/2012 for the course E 101 taught by Professor Sfere during the Spring '12 term at Abilene Christian University.

Ask a homework question - tutors are online