ACC200 term XXXXXXXXXXAssignment Due: week 10 (see moodle) Mark: 20% Word count: 2000 words approximately. In a report format. Fantori Ltd has been in business for few years manufacturing sewing...

MANAGERIAL ACCOUNTING
ACC200 TERM 3 2018 ASSIGNMENT
Executive Summary
This assignment deals with traditional costing and activity based costing. In the initial part of the assignment, the cost per unit of the sewing machines has been computed using traditional system. The same was followed by activity based costing system. The reason for foreign customers preferring advanced model has also been outline clearly. The treatment of over or under absorption of overheads has also been discussed in the later part of the assignment. The under absorbed overheads have also been apportioned among work in progress, finished goods and cost of goods sold.
Table of Contents
Introduction    4
1)    4
2)    5
3)    7
4)    8
5)    9
Conclusion    10
References    11
Introduction
Traditional Costing system is the system, which uses machine hours or labour hours for allocation of indirect costs. According to the views of Fenn et al. (2015), in case of traditional costing, the total indirect costs is divided between different departments based on the ratio, which is easily available. However, use of traditional costing leads to improper computation of cost of products. This leads to rejection of number of contracts, which could have been feasible if the costing was done correctly.
Activity based costing is a costing mechanism in which the indirect cost are based on the actual usage/ exhaustion. According to the perspective of Susilawati et al. (2015), different costs are allocated on different basis, rather than a single basis like traditional costing. It is a correct way of allocation of overheads. It leads to determination of true cost of a product or service and ensures that the contracts/ projects can be selected in a true manner.
1)
There are two models of sewing machines, which are the basic and the advanced version. Under the traditional costing system, the indirect costs or the overheads are apportioned based on machine hours.
    Basic Model
    Units produced and sold
    1700
    Direct material per unit
    350
    Direct labour cost
    175
    Total direct cost
    525
    Machine hours
    4700
    Overhead allocation
    160487.8
    Overheads per unit
    94.40459
    Cost of production
    619.4046
    Add: other expenses per unit
    0
    Total cost per unit
    619.4046
    Advance Model
    Units produced and sold
    1600
    Direct material per unit
    580
    Direct labour cost
    280
    Total direct cost
    860
    Machine hours
    3500
     
    119512.2
    Overheads per unit
    74.69512
    Cost of production
    934.6951
    Add: other expenses per unit
    239.6875
    Total cost per unit
    1174.383
The total cost per unit of basic model is $619.40. On the other hand, the same cost for the advanced model is $1174.383. Some additional expenses like selling and administration, interest expense and office rent are incurred to manufacture the advanced model. This had led to a significant increase in the cost of advanced model. However, it can be seen that the indirect costs could have been divided individually in some other ratios. However, the machines hours was used as a base to divide all the indirect costs. This had led to improper computation of cost of each model. This could lead to rejection of a number of contracts due to improper computation of cost. One of the product will be under-priced and the other will be over-priced due to improper allocation of cost. However, computing the total cost using traditional method as easy and hence, it did not take much of effort as machine hours was used only for allocation of cost.
2)
Under the activity based costing method, the individual cost are apportioned among products based on different ratio. In the current scenario, the inspection cost was divided based on the number of inspections on each product category. There were 210 inspection for basic model and 760 for the advanced model. Hence, the inspection cost of $30000 is divided in the ratio of 210:760. The total assembling cost was $100000. 4700 machine hours were used for assembling the basic model and 3500 machine hours were used for assembling the advanced product. Hence, the total assembling cost of $100000 is divided in the ratio of 470:3500. In case of production, scheduling cost amounting to $110000. 60 production runs were made for basic model and 510 runs for the advanced model. Therefore, the...