Management accounting and Cost Samples for Students-Myassignment

Questions: 1.Identify the three Major Cost elements in the cost of a Product or Service. Define each and give examples. 2.Give three Examples of Products where more detailed recording of Costs is required and three examples of products where averaging techniques may be appropriate. 3.What will be the monthly cost of renting a manufacturing plant? 4.Should overtime payments be treated as direct labour, or as overhead? Explain. 5.Your Employer is Contemplating changing the existing traditional costing systems used in the Business to adopt activity based Costing (ABC). See your text page.Prepare a Business Report outlining the traditional Costing System and Evaluate arguments for and against ABC. Answers: 1.Three crucial elements in the cost of a service or product are Labour cost: thus cost involves the fund that is given to the labours for constructing or producing any product. The examples for the workers include the machine operators, assembly line workers and installation clerks. Material cost: this cost refers to the cost of material that is actually used for the production of the particular product. For example, wood and nuts used in the building construction. Overhead cost: these costs are associated with the process of manufacturing and exclude the labour and raw material funding. For instance, any rebuilding and maintenance cost of the manufacturing procedures (Meixell, Kenyon Westfall, 2014). 2.Three products where more detailed approach of costing are required are the purchase cost, sales and the cost of inventory. These costs required more detailed recording as they are vulnerable to frauds, errors and misstatement. Three products where average detailed recordings are required are the insurance cost, legal expenses and interest income as these items are less vulnerable to misstatement and do not involve the decision making strategies of the users of financial reports. 3.The monthly cost of renting a manufacturing plant is A conversion cost and a period cost The reason for this is that the cost that is incurred for manufacturing other than the labour and material cost are known as conversion cost and rent is accounted as period cost 4.Overtime payment is paid as additional payment apart from the normal wage. Therefore, it is not included under the labour cost and is accounted as the indirect labour cost and is added under the manufacturing overhead cost. Thus, the overtime payment is not accounted as direct labour and is accounted as overhead cost and added in the manufacturing overhead (Samuel, 2015). 5.Activity based costing against the Traditional costing system Introduction Activity based costing that is referred as ABC verifies all the activities that are related with the production and allocate the cost to those activities and then calculates the product cost. On the other hand, the traditional approach allocates cost to the products based on the average rate of overhead. Under this method, all the indirect costs from production are taken into account and then allocate those costs across all the cost drivers equally through using one suitable driver of cost like machine hours (Mahal Hossain, 2015). Discussion ABC approach is more accurate as compared to the traditional approach as it takes into account all the crucial factors before allocating a cost to the product. However, this method is a bit complex in nature and takes more time. It is more methodical and accounts the non-manufacturing expenditures like the managerial costs and administrative expenses. On the other hand, the traditional costing approach is easier as compared to the ABC approach as it allocates cost based on the average rate of overhead (Haddadi, D., Hassan Seyednezhad, 2015). Conclusion It is concluded from the above facts that where the accuracy is important, ABC approach shall be used there, even if it is costlier and where the time is limited and the accuracy is not so important, traditional approach may be used. References Haddadi, D., Hassan, M., Seyednezhad, M. J. (2015). Comparative study of traditional and activity-based costing in forging companies of Iran tractor. Meixell, M., N. Kenyon, G., Westfall, P. (2014). The effects of production outsourcing on factory cost performance: an empirical study.JournalofManufacturingTechnology Management,25(6), 750-774. Mahal, I., Hossain, A. (2015). Activity-Based Costing (ABC)An Effective Tool for Better Management .Research Journal of Finance and " target="_blank"Accounting,6(4), 66-73. Samuel, S. W. (2015). Working Overtime: Who Really Benefits.