Question

The following items (partial list) are associated with a functional-based cost accounting information system, an activity-based cost accounting information system, or both:

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a.	materials purchasing cost incurrence
b.	assignment of purchasing cost to products using direct labor hours
c.	assignment of purchasing cost using number of purchase orders
d.	usage of direct materials
e.	direct materials cost assigned to products using direct tracing
f.	materials handling cost incurrence
g.	materials handling cost assigned using direct labor hours
h.	materials handling cost assigned using the number of moves as the driver
i.	computer
j.	materials handling equipment
k.	decision to make a part or buy it from a supplier
l.	costing out of products
m.	report detailing individual product costs

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Required:

1.	For an activity-based cost system, classify the items into one of the following categories:
	a.	interrelated parts
	b.	processes
	c.	objectives
	d.	inputs
	e.	outputs
	f.	user actions
2.	How would the choices differ between the two systems? What are the costs and benefits of each?

Answer 1

Sr. No.	Particulars	Classification
1	Materials Purchasing Cost Incurrence	Inputs
2	Assignment Of Purchasing Cost To Products Using Direct Labor Hours	Processes
3	Assignment Of Purchasing Cost Using Number Of Purchase Orders	Processes
4	Usage Of Direct Materials	-
5	Direct Materials Cost Assigned To Products Using Direct Tracing	Processes
6	Materials Handling Cost Incurrence	Inputs
7	Materials Handling Cost Assigned Using Direct Labor Hours	Processes
8	Materials Handling Cost Assigned Using The Number Of Moves As The Driver	Processes
9	Computer	Interrelated parts
10	Materials Handling Equipment	-
11	Decision To Make A Part Or Buy It From A Supplier	User Action
12	Costing Out Of Products	Objectives
13	Report Detailing Individual Product Costs	Output

2. The difference in the costing systems is found in the processes.

• A functional-based cost system would not use nonunit drivers such as moves and orders to assign overhead.There is increased accuracy of the cost assignments in an activity- based system, and a more comprehensive idea of costs may be used for decision making.
• The activity-based cost accounting system is more expensive to develop but has the benefit of more comprehensive uses for cost information however functional-based cost system is simpler and less expensive to implement.