Managerial Accounting Case Analysis Essay

Compare assigned woo per product below both methods. Why has Activity-based costing changed the occur costs assigned to apiece product?By comparing the two cost assigned methods, on that point are some differences existed Unit Product be Gadgets Smidgets Smadgets Smadgets tralatitious cost Method 400 1,000 1,350 850Activity-Based Costing Method 590 1,100 760 1,250 disk overhead Cost Widgets Gadgets Smidgets SmadgetsTraditional Costing Method two hundred,000 600,000 800,000 400,000 Activity-Based Costing Method 390,000 600,000 210,000 800,000I deduct the master(prenominal) reason for that areTraditional Costing Method use the bang Rate (200% of direct labor) and the Activity-Base Costing Method just use the Overhead Cost Drives.As for Traditional Costing Method, the company just bundle costs into a cost center (Three kinds of costs conductor material, director labor, Manufacturing Overhead) , and the Manufacturing overhead just equals the director labor multiply by 200% , t he Overhead Rate. These iii kind of costs added together we got the total cost, and the total cost divided by the each unit built, we get the final exam unit product cost, I think it is a rough conniving change. The result depends on the direct labor hours and regardless of any different elements, if direct labor dose not account for a large portion of the product, the result will not be accurate.In foothold of Activity-based costing method, the company use Overhead Cost Drives (There are three allocation bases in the first principle method depreciation, machine set-up and rent). The Overhead put down just use cost drivers (Such as Machine hours, Set-up hours and Rent) to apply the costs on the products. On the basis of these three, we can get the Overhead cost drives Pool Rate, and we also get the actual Cost Driver Quantity for Product Line, and finally we can know what is the minute Activity Cost for Product Line with respect products, finally, we got the total ABC Overhe ad cost for thethree products. So I think this allocating process is more accurate, because it use the Cost drives into different part in detail.