Question

1 . In what ways does ABC differ from Job Costing and Process Costing

2. Define the concepts and give an example for each concept

a. Unit level activities

b Batch level activities

c Product level activities

d Customer level activities

e. Organization sustaining activities

What type of activities should not be assigned to products in ABC?

4. Why are there 2 stages of allocation in ABC?

5. When ABC is used, why is MOH often shift from high volume products to low volume products

6. How can you apply these concepts in your workplace. If your company is already using ABC, share the cost pools and activity measures used including the allocation method.

Answer 1

Answer:-

1.Difference between ABC Costing, Process Costing and Job Costing:-

ABC Costing:-

ABC Costing refers to Activity Based Costing where the costs to product are allocated on the basis of activities consumed by the products in the process of manufacturing.It is used by industries producing different types of goods under one roof.It allocates costs more accurately since the cost is determined on the basis of activity consumption.For example, if you produce different types of tea in one factory and Tea type I requires more packaging material that Tea Type II, then costs are allocated on the basis of consumption.

Process Costing:-

Process Costing is a method of allocating costs on the basis of process i.e., stage of production.It is used in industries manufacturing identical products in large quantities.Cost of maintaining records in process costing is lower as each unit's cost is more or less same.There are 3 types of process costing methods namely, Standard Cost,weighted average cost and First in First Out Method.Examples of process costing industries include Coca Cola, Pepsi,etc.

Job Costing:-

Job Costing is a method of costing in which costs and revenues are allocated on the basis of job. It is mostly used in industry where product is manufactured on the basis of customer specifications.For example if you go a tailor, costing of your work is dependent on the type of stitching design you need or if you want to get a customized machinery manufactured for your factory, costs are based on your specifications.

2.a.Unit Level Activities:- Unit level activities are the activities that happen every time a unit is manufactured.Activities that have direct relation with the production of each unit are called unit level activites. For example Raw material Costs, Labour Costs,etc.

b.Batch level Activities:- Batch level activities are the activities that occur every time a batch is produced.Examples of Batch level activities include Machine Set up Costs, Purchase Order Costs,etc.

c.Product Level Activities:- Product level activities are the activities relating to a specific product. For example product design, product advertisements,etc.

d.Customer level Activities:-Customer level activities are activities relating to a specific customer. For example Technical support,calls,etc.

3.Costsof resources which are not actually consumed by any product should not be assigned to products in Activity Based Costing System.For Example Customer level costs, property taxes, insurance,etc.

4.In the first stage,overhead costs are assigned to Cost centres and in the second stage costs are allocated to cost objects in cost centres using allocation bases.For example say a cost of setting up overall machines in the factory is 1 crore and the factory has 10 cost centres hence first these costs are assigned to each cost centre and the the cost of each cost centre i.e., 10 lac is allocated to products that will be manufactured in those machines using machine hours or any other cost driver as a base.