Acct301 Cost Accounting

Acct301 Cost Accounting
Q1. Differentiate with suitable examples the traditional costing systems and activity-based costing. Explain how ABC is used in manufacturing by providing a numerical example.
(3 Marks)
Note: Your answer must include suitable numerical examples. You are required to assume values of your own and they should not be copied from any sources. (Week 7, Chapter 7)

2-Provide a numerical example of special order decisions and make or buy decisions and explain how these decisions are backed by quantitative and qualitative considerations.
(4 Marks)
Note: Your answer must include suitable numerical examples. You are required to assume values of your own and they should not be copied from any sources.
(Week 8, Chapter 4)

Acct201 Financial accounting

3-Long-lived tangible asset are associated with either depreciations, impairments or depletions. Explain why companies revalue such assets on an annual basis, and give examples on depreciations, impairments and depletions.
( 5 marks)

4-List and describe the types of intangible assets and illustrate with examples. (3 mark)

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Answer:

Q1. Differentiate with suitable examples the traditional costing systems and activity-based costing. Explain how ABC is used in manufacturing by providing a numerical example.

Traditional costing systems allocate overhead costs to products based on a single predetermined rate. This predetermined rate is usually calculated based on direct labor hours, machine hours, or direct material costs. However, this method may not provide an accurate representation of the true costs of products or services, especially if there are significant variations in the production process.

Activity-based costing (ABC), on the other hand, identifies the activities that go into producing a product or service and assigns costs to those activities. This method provides a more accurate representation of the true costs of products or services, as it considers the specific activities that contribute to the production process.

For example, let’s consider a company that produces two types of products: Product A and Product B. The company has two overhead cost pools: one for machine-related costs and one for setup-related costs. The following information is available:

Product A Product B
Direct materials cost per unit $50 $75
Direct labor cost per unit $20 $30
Machine hours per unit 2 3
Setup hours per unit 1 2
Total machine-related costs $10,000 $20,000
Total setup-related costs $5,000 $10,000
Using the traditional costing system, the company might allocate overhead costs based on machine hours or setup hours. For example, if the company uses machine hours to allocate overhead costs, the predetermined overhead rate would be calculated as follows:

Predetermined overhead rate = Total machine-related costs / Total machine hours
= ($10,000 + $20,000) / (2,000 + 3,000)
= $10 per machine hour

Using this predetermined rate, the overhead costs for Product A and Product B would be calculated as follows:

Product A overhead costs = 2 machine hours × $10 per machine hour = $20
Product B overhead costs = 3 machine hours × $10 per machine hour = $30