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    Abc & Management Case Study

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    rajyalakshmi
    The document compares the traditional costing method and activity-based costing method for calculating total costs of widgets, gadgets, smidgets, and smadgets. Under the traditional method, widgets accounted for 10.81% of total cost and gadgets accounted for 29.73% of total cost. However, under the activity-based costing method, widgets accounted for 15.95% of total cost, gadgets remained at 29.73%, smidgets accounted for 20.54% of total cost, and smadgets accounted for 33.78% of total cost. This reveals that the traditional method did not allocate indirect costs accurately.

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    Abc & Management Case Study

    Uploaded by

    rajyalakshmi
    123 views4 pages
    The document compares the traditional costing method and activity-based costing method for calculating total costs of widgets, gadgets, smidgets, and smadgets. Under the traditional method, widgets accounted for 10.81% of total cost and gadgets accounted for 29.73% of total cost. However, under the activity-based costing method, widgets accounted for 15.95% of total cost, gadgets remained at 29.73%, smidgets accounted for 20.54% of total cost, and smadgets accounted for 33.78% of total cost. This reveals that the traditional method did not allocate indirect costs accurately.

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    ABC & MANAGEMENT CASE STUDY.xlsx

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    The document compares the traditional costing method and activity-based costing method for calculating total costs of widgets, gadgets, smidgets, and smadgets. Under the traditional method, widgets accounted for 10.81% of total cost and gadgets accounted for 29.73% of total cost. However, under the activity-based costing method, widgets accounted for 15.95% of total cost, gadgets remained at 29.73%, smidgets accounted for 20.54% of total cost, and smadgets accounted for 33.78% of total cost. This reveals that the traditional method did not allocate indirect costs accurately.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    123 views4 pages

    Abc & Management Case Study

    Uploaded by

    rajyalakshmi
    The document compares the traditional costing method and activity-based costing method for calculating total costs of widgets, gadgets, smidgets, and smadgets. Under the traditional method, widgets accounted for 10.81% of total cost and gadgets accounted for 29.73% of total cost. However, under the activity-based costing method, widgets accounted for 15.95% of total cost, gadgets remained at 29.73%, smidgets accounted for 20.54% of total cost, and smadgets accounted for 33.78% of total cost. This reveals that the traditional method did not allocate indirect costs accurately.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Calculation of total cost using traditional method

    particular widgets gadgets


    direct material $100,000.00 $200,000.00
    direct labour $100,000.00 $300,000.00
    prime cost $200,000.00 $500,000.00
    overhead as a percentage of
    direct labour 20000000% 60000000%
    total cost $400,000.00 $1,100,000.00
    % of total cost 10.81% 29.73% 36.49%
    calculation of activity based overhead rates

    overhead cost overhead


    depriciation $300,000.00
    Setup $700,000.00
    rent $1,000,000.00

    calculation of total cost as per activity based costing


    particular rate widgets gadgets
    direct material $100,000.00 $200,000.00
    direct labour $100,000.00 $300,000.00
    prime cost $200,000.00 $500,000.00
    overhead cost
    depriciation 100 $50,000.00 $90,000.00
    setup 700 140000 210000
    rent 10 200000 300000
    total cost $590,000.00 $1,100,000.00
    % of total cost 15.95% 29.73%

    % of total cost 10.81% 29.73%


    % of total cost 15.95% 29.73%
    smidgets smadgets total %
    $150,000.00 $250,000.00 $700,000.00
    $400,000.00 $200,000.00 $1,000,000.00
    $550,000.00 $450,000.00 $1,700,000.00

    80000000% 40000000% 200000000% 200%


    $1,350,000.00 $850,000.00 $3,700,000.00
    22.97% 100.00%

    activity based
    costdriver o/h
    $3,000.00 $100.00
    $1,000.00 $700.00
    $100,000.00 $10.00

    smidgets smadgets total


    $150,000.00 $250,000.00 $700,000.00
    $400,000.00 $200,000.00 $1,000,000.00
    $550,000.00 $450,000.00 $1,700,000.00
    Managerial implication:
    $40,000.00 $120,000.00 $300,000.00 in rubrics corporation traditional costing method was used
    70000 280000 700000 i.e, direct labour as base for allocating indirect costs.
    100000 400000 1000000 according to that widgets occupies 11% of total cost
    $760,000.00 $1,250,000.00 $3,700,000.00 gadgets occupies 30% of total cost.smidgets occupies 36% of to
    20.54% 33.78% 100.00%
    when ABC method is adopted the reak scenerio is rev

    36.49% 22.97% TRADITONAL


    20.54% 33.78% ABC
    al costing method was used
    ocating indirect costs.
    pies 11% of total cost
    cost.smidgets occupies 36% of total cost and smadgets occupies 23% of total cost.

    adopted the reak scenerio is revelead i.e,each indirect cost is allocated based on the appropriate
    according to that widgets occupies 16% of total cost there is no change in % of gadgets.Suprisingly
    smidgets occupies nearly 21% of total cost(which is 15% lesser than earlier method) and smadgets occupies 34% of the tot

    on controlling the cost of widgets,smidgets and samdgets


    ets occupies 34% of the total cost(11% more than the earlier method)so immediate action need to be taken

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