Question

In: Accounting

Companies can choose from different costing methods: process/product costing and activity-based costing. Think about a company...

Companies can choose from different costing methods: process/product costing and activity-based costing. Think about a company you know and answer the following:

  • What are the differences between the two costing methods, and how do these apply to your company?
  • What are some ABC cost drivers the company might use?
  • How could the costs differ if one method is chosen over the other?
  • Which method would you recommend for your company, and why?

Solutions

Expert Solution

ANSWER :

1.The differences between the two costing methods :

In a procedure costing and item costing, the overheads are apportioned dependent on pre decided overhead premise. Ex. by means of absolute direct work hours or machine hours utilized and so forth.

However, in the ABC costing, overheads are allcoated dependent on the action utilized by the item. In my picked organization of oil extraction (take any organization you can consider like ONGC India), process costing is utilized as it is a procedure based industry where the items are not hetrogenous and exercises are normal.

2.ABC cost drivers the company might use

  • No. of work hours
  • No.of agreements
  • No. of tests
  • No. of requests
  • No. of designing hours

3.The costs differ if one method is chosen over the other

Cost when dependent on the ABC costing technique can either incrrease or diminish dependent on the exercises utilized by the item. Ex., a specific items takes less of the designing hours which cost $ 500/hour while takes a greater amount of work hours which are of $ 100/hour where as item B takes more engeneering hours and less immediate work hours.

In item costing technique, the overhead rate whenever designated dependent on the immediate work hours than item B would be have been less expensive where as item An exorbitant where as in reallity it would not be the situation with ABC

4.   For my picked organization (you can take any organization, am taking ONGC India) process costing I would picked in light of the fact that it has homogneous product offering and proeuction process.

Note : if you like my work please give an upvote.


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