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Describe which costing system is more accurate
Course:- Accounting Basics
Reference No.:- EM131036161




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Question-

Pretty Good Picture framing is costing a large job (no. 60) for a client. The current costing system allocates manufacturing overhead based on machine hours. However the accountant is considering introducing an ABC costing system and has obtained the following
information:

Budgeted overhead (Costs)
Material handling $40,000
Machine maintenance $231,000
Product inspection $18,000
TOTAL Mfg Overhear $289,000

Buggeted quantity of cost drivers
Material moves $500
Machine Hours 10,000
Inspections 1,200

JOB 60
Number of materials moves 10
Machine hours 40
Number of inspections 9

Required:

a) Describe which costing system is more accurate and explain why there are differences between traditional costing and ABC costing allocated amounts. Explain the need for these more modern (ABC) costing systems.

b) Some of the activities in the budget above may be classified as either value-added or non-value added or grey areas (partly value-added and partly non-value added).




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