Question

Question 1.

1. Differentiate between contract costing and service costing. Provide your answer in tabular form with three differences.
2. List five (5) industries which are most likely to apply contract costing in their operations.
3. In a tabular form, provide two (2) similarities and two (2) differences each between Activity Based Costing (ABC) method and the Traditional method of charging overheads.
4. How different in management accounting from cost accounting? Provide a brief commentary in two paragraphs.

Please help me out...

Answer 1

HI there,

Here is my view on the questions asked.

(a) Difference between Contract Costing and Service costing :

  

Contract Costing	Service costing
Contract costing is adopted where a job is very big and takes a long time to complete. Under this method of costing the cost of each contract is ascertained separately.	Service Costing is also known as ‘operating costing’ is used for establishing costs of services rendered or services offered for sale and no items are produced.
It is suitable for those firms which are engaged in the construction of bridges, roads, buildings, factories etc. on a contract basis.	Operating costing is adopted by airways railways, road transport companies (goods as well as passengers) hotels, cinema halls, power houses etc.
In some industries, such as government contracting and commercial construction, contract costing is the primary task of the accounting department, or may even be organized as an entirely separate department. Proper contract costing can contribute a considerable amount of profits, and so is typically staffed with more experienced contract managers and accountants.`	The total operating cost for a company includes the cost of goods sold, operating expenses as well as overhead expenses. The operating cost is deducted from revenue to arrive at operating income and is reflected on a company’s Income statement

(b) some of the Industries apply contract costing in their operations are :

• ship-building
• road construction
• building construction
• civil engineering works

(c) Difference between ABC Method and Traditional Method in charging of Overheads :

ABC Method	Traditional Method
Uses multiple cost drivers for multiple activities.	Uses identical cost driver for different activities.
Is difficult to implement and requires time and effort.	Is straightforward and easy to implement.
Cover product cost only.	Can cover both product as well as period costs.
The values can be used in external financial statements.	The values cannot be used in reports of external reporting.
Enhances management knowledge about activities related to production process.	Does not provide opportunity to identify any specific reasons for costs incurred

(d) Differnce between Managment accounting and Cost accounting :

What is Cost Accounting?

It is an accounting system that aspires to capture an enterprise’s costs of manufacturing by evaluating the input costs of each step of manufacturing as well as fixed costs, namely, depreciation of capital equipment. Cost accounting will initially compute and document these costs separately, then analyse input outcomes to output or actual outcomes to assist the enterprise’s management in computing financial accomplishment.

What is Management Accounting?

It refers to the outlining of financial and non-financial data for the utilisation of management of the enterprise. The data furnished is useful in outlining budgeting, forecasting plans, policies and strategies, evaluating the performance and making comparisons of the management.

Meaning	Cost accounting is an accounting system that aspires to capture an enterprise’s costs of manufacturing by evaluating the input costs of every step of manufacturing as well as the fixed costs, namely, depreciation of capital equipment.	Management Accounting refers to the outlining of financial and non-financial data for the utilisation of management of the enterprise. It is also known as managerial accounting.
Data type	Quantitative	Both Quantitative and Qualitative
Scope	Focused on distribution, allocation, determination and accounting factors of the cost	Convey (impart) and effect factor of the cost
Objective	Determined in cost production	Furnishing data to the managers to fix goals and anticipate strategies
Specific procedure	Yes	No
Planning	Short term planning	Both Short and long term planning
Recording	Records both past and present data	Focuses more on scrutinizing for future projects
Interdependency	Can be installed without a Management accounting	Cannot be installed without cost accounting