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Traditional and Activity-Based Costing - Sewing Easy Ltd

University: Melbourne Business School

  • Unit No: 9
  • Level: Undergraduate/College
  • Pages: 8
  • Words: 2000
  • Paper Type: Assignment
  • Course Code:

    M/508/9862

  • Country: AU
  • Downloads: 1
Question :

This unit is based on Sewing Easy Ltd which is dealing in manufacturing sewing machines in the recent year they earned high profit thus they planned to expand business activity.

  • Determine the cost per unit of basic and advance models under current traditional costing system.
  • Analyze basic and advance models under Activity-based costing system.
  • Explain major reason in the context of overseas buyers for buying advanced model.
  • Explain reasons on the basis of the same overheads and recommending ways for dealing with its fluctuations.
  • What is the Merit and demerits of activity-based costing system?
Answer :
Organization Selected : Sewing Easy Ltd

INTRODUCTION

Management accounting can be referred as process of preparing accounts and reports which will be helping manager for finding financials which are accurate and even the information which will be useful for short term decision making such as statistical information. On the perspective of business unit, better planning has been ensured by management accounting and proper control over the organization. This report is totally based on case scenario of Sewing easy ltd whose business model can be described as basic and advanced especially in manufacturing context. The main objective of organization is to enhance the base of customer and profit level should be maximised as each business units has a desire to explore there operations at global level. This report is giving very deep insight about two methods i.e. traditional based costing and activity-based costing. The report will be elaborating there merits as well as demerits.

Q1 Cost per unit of basic and advance models under current traditional costing system

Traditional costing system

Particulars

Amount of basic model

Amount of advance model

Manufacturing overhead

250000 (working note 1)

451700 (Working note 2)

Labour cost (Working note 3)

240000

390000

Overhead rate

$1.04

$1.16

Working notes

W.N 1 Representation of total indirect overheads (Basic model)

W.N 2 Representation of total indirect overhead cost by taking consideration of operating expenses (Advance model)

W.N 3 Aggregate of labour cost

Q2 Cost per unit of basic and advance models under Activity-based costing system

Assessing unit cost on the basis of activity based costing

Particulars/Relevant cost drivers

Overhead costs

Sum of activities

Overhead cost/ sum of activity ($)

Inspection

20000

950

21.05

Assembly

90000

8000

11.25

Production scheduling

105000

550

190.91

Machine set up

35000

350

100

A

Activity rate

B

Activity usage by basic model

C

Activity Cost Assigned to basic model [C = (A * B)]

D

Activity usage by advance model

E

Activity cost assigned to advance model [E =(A * D)]

Particulars

Total Indirect / overhead costs($)

Total of activities

A ($)

B

C ($)

D

E ($)

Inspection

20000

950

21.05

200

4210.53

750

15789.47

Assembly

90000

8000

11.25

4600

51750

3400

38250

Production Scheduling

105000

550

190.91

50

9545.45

500

95454.55

Machine set-up

35000

350

100

100

10000

250

25000

Selling and administration

140600

140600 * 36% = 50616 (Working note 4)

Interest

25200

25200 * 6% = 1512 (Working note 4)

Rent of office

35900.

35900 * 9% = 3231 (Working note 4)

Aggregate overhead cost

Figures in

75505.98

229853

Per unit (overhead cost)

75505.98 / 1600 = 47.19

229853 / 1500 = 153.24

W.N 4

Particulars

Total Indirect / overhead costs ($)

Cost of labor

Selling and administration

140600

390000

36.00%

Interest

25200

390000

6.00%

Office rent

35900

390000

9.00%

Consumption of unit cost of advanced model

Basic model ($)

Advance model ($)

Cost per unit of direct material

325

560

Cost per unit of direct labour

150

260

Cost of overhead

47.19

153.24

Unit cost

522.19

973.24


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