Question

In cost Accounting if Budgeted cost is less than Actual cost what it called over costed or under cost?

what is differents between current method and Activity based method

Answer 1

In cost accounting if budgeted cost is leas than actual cost then it is called as over costed because what we plan is less then the actual. For e.g like budgeted cost for administration expenses is $10000 but the actual cost incurred is $15000 so our cost is increased by $5000 that’s it is over costed.

The difference between ABC or Activity Based Costing and TCA or Traditional Cost Accounting is that ABC is complex whereas TCA is simple.

In the TCA system, the cost objects and used up resources are required to evaluate the cost whereas in the ABC system the cost is dependent upon the activities used up by the cost objects.

Activity Based Costing is accurate and preferred over the TCA cost management system. The ABC method of cost management system is adopted when the overheads of the company are high and there are large numbers of miscellaneous products. Inaccuracy or errors are most unwanted and undesirable because of the competitive rates set by the competitors in the market. Due to this heavy and stiff competition, a highly reliable and accurate method is required for the cost management.

TCA or Traditional Cost Accounting uses a single overhead pool and is not able to calculate the true cost. The costs of the objects are allocated randomly based upon the labor or machine hours etc. ABC costing includes identifiable products parts or labor whereas TCA arbitrarily accumulates expenses, salaries, depreciations etc.