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  • Actual Based Costing vs. Traditional Approach

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    SHARMAINE JOY FULGAR
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    The document reconciles the overhead costs of Product EXO between traditional cost accounting (TCA) and activity-based costing (ABC) for Fortuitous Company's Mambaling Plant in 2020. Under TCA, the overhead cost per unit of Product EXO is $315. ABC analysis separates overhead into batch, product, and plant/unit levels, resulting in a more accurate overhead cost per unit of $1,385. A similar comparison for direct labor hours also finds that ABC ($1,850 per unit) provides a more accurate overhead cost than TCA ($350 per unit).

    Original Description:

    ACTUAL BASED COSTING VS. TRADITIONAL APPROACH

    Original Title

    ACTUAL BASED COSTING VS. TRADITIONAL APPROACH

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    The document reconciles the overhead costs of Product EXO between traditional cost accounting (TCA) and activity-based costing (ABC) for Fortuitous Company's Mambaling Plant in 2020. Under TCA, the overhead cost per unit of Product EXO is $315. ABC analysis separates overhead into batch, product, and plant/unit levels, resulting in a more accurate overhead cost per unit of $1,385. A similar comparison for direct labor hours also finds that ABC ($1,850 per unit) provides a more accurate overhead cost than TCA ($350 per unit).

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    10 views4 pages

    Actual Based Costing vs. Traditional Approach

    Uploaded by

    SHARMAINE JOY FULGAR
    The document reconciles the overhead costs of Product EXO between traditional cost accounting (TCA) and activity-based costing (ABC) for Fortuitous Company's Mambaling Plant in 2020. Under TCA, the overhead cost per unit of Product EXO is $315. ABC analysis separates overhead into batch, product, and plant/unit levels, resulting in a more accurate overhead cost per unit of $1,385. A similar comparison for direct labor hours also finds that ABC ($1,850 per unit) provides a more accurate overhead cost than TCA ($350 per unit).

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 4

    RECONCILATION OF ABC and TC

    Fortuitous Company manufactures a


    variety of high and low volume
    products, including Product
    EXO, in Mambaling Plant. The
    following information pertains to 2020
    data:
    Fortuitous Company manufactures a
    variety of high and low volume
    products, including Product
    EXO, in Mambaling Plant. The
    following information pertains to 2020
    data:
    Fortuitous Company manufactures a
    variety of high and low volume
    products, including Product
    EXO, in Mambaling Plant. The
    following information pertains to 2020
    data:
    Fortuitous Company manufacturers a variety of high and low volume products, including Product
    EXO in Mambaling Plant. The following information pertains to 2020 data:

    ANSWER:
    A. Traditional Cost Accounting
    -Machine Hours
    -Total Overhead and per unit

    TOTAL OVERHEAD COST= 3,500,000 ÷ 10,000 * 90 = 31,500/Machine Hour

    B. Activity-Based Costing
    -Set-ups (Batch level), Design hours ( Product level), Machine hours (Unit level & Plant level)
    -Total Overhead and per unit

    BATCH 750,000 ÷ 120 * 6 set ups = 37,500


    PRODUCT 1,250,000 ÷ 4,000 * 280 hrs = 87,500
    PLANT & UNIT LEVEL 1,500,000 ÷ 10,00 * 90 MH = 13,500
    OVERHEAD COST = 138,500

    OVERHEAD PER UNIT 138,500 ÷ 100 units = P1,385/unit

    C. Comparison of TCA versus ABC

    COST OF EXO Traditional Costing TOTAL PerUnit


    31,500 315
    Adjustment for Distortion
    BATCH LEVEL
    TC: 750,000÷ 10,000*90MH =6,750
    ABC: 37,500 30,750 307.50

    PRODUCT LEVEL
    TC: 1,250,00 ÷10,000*90MH =11,250
    ABC: 87,500 76,250 762.50

    COST OF EXO ABC 138,500 1,385

    D. Traditional Cost Accounting


    -Direct Labor Hours
    -Total Overhead and per unit

    TOTAL OVERHEAD COST 3,500,000 ÷ 20,000 DLH * 200 DLH = 35,000 Per DLH

    OVERHEAD PER UNIT 35,000 ÷ 100 units = 350 Per Unit

    E. Activity-Based Costing
    -Set-up hours (Batch level), Design changes (Product level), DL hours (Unit level & Plant level)
    -Total Overhead and per unit

    BATCH 750,000 ÷ 500 * 30setup hours = 45,000


    PRODUCT 1,250,000 ÷ 40 * 4 design changes = 125,000
    PLANT & UNIT LEVEL 1,500,00 ÷ 20,000 * 200 DLH = 15,000
    OVERHEAD COST = 185,000

    OVERHEAD PER UNIT 185,000 ÷ 100 units = 1,850 Per Unit

    F. Comparison of TCA versus ABC

    COST OF EXO Traditional Costing TOTAL PER UNIT


    35,000 350

    Adjustment for Distortion

    BATCH LEVEL
    TC: 750,000 ÷ 20,000 * 200 DLH= 7,500
    ABC: 45,000 37,500 375

    PRODUCT LEVEL
    TC: 1,250,000 ÷ 20,000 * 200 DLH= 12,500
    ABC: 125,000 112,500 1,125

    COST OF EXO ABC 185,000 1,850

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