Traditional costing: Finding direct costs Table 2 below shows the resulting revenues and direct costs for these sales.
ABC Stage-1 allocation (batch level allocation) for product A: Activity pools, cost drivers, cost per cost driver unit, and total cost for these activities.
These costs, in turn can be reasonably be apportioned to individual product units.Units produced and sold Table 2, line 1 900,000 2,100,000 3,000,000.Maintenance cleaning No of batch runs 1,000 Total 870,000 Table.This calculation returns the value 2,857.00.Direct labor cost / unit.50.50.Gross profit and gross margin calculation for each product, using linux read write process memory traditional cost accounting approaches for indirect costs.During the year, Busy Ball expects to make 1,000,000 hollow center balls and 2,000,000 solid center balls.Product packaging No of product packages packed.20 500,000 100,000.A B Indirect of Total Indirect Materials purchasing 180,000.6 Machine world atlas of wine 7th edition ipad setups 375,000.4 Product packaging 280,000.7 Machine testing calibration 300,000.1 Machine maintenance cleaning 287,000.2 Total Indirect 1,422,500 100.0 Table.While this approach may result in some allocations being arbitrary, using ABC does provide a more accurate estimate of costs for use in making management decisions.By looking at the total number of steps required to serve regular hot dogs and the total number of steps required to serve chilidogs, you can trace the wages expense to the individual product lines.
The indirect cost allocation for A is therefore.8 of this, or 426,750.
The direct labor total (line 6 from Table 1) is 1,500,000. .Machine testing calibration No of tests 100 1,000 100,000.Firstly, recent improvements in costing software.The different approaches and outcomes from ABC and traditional costing are easiest to illustrate in the context of a product manufacturing example.The per unit cost to produce balls is calculated in two steps: Calculate the predetermined overhead rate by dividing total overhead costs by total direct labor dollars.The company wants to make 20 profit on full production cost.The example shows how ABC and traditional costing can yield different indirect cost estimates for the same products.ABC For example, consider a firm that manufactures automobile parts through a sequence of machine operations on metal stock.If you sell 2,000 chilidogs and each chilidog requires five steps, the chilidog product line requires 10,000 steps.Price products appropriately, with the help of accurate product cost information.