Managment Accounting Essay Example | Topics and Well Written Essays - 1000 words - 1

Managment Accounting - Essay ExampleHowever, on a lower floor ABC, the growth ABW generates a loss. In total, the ABC method results into a higher total profit for on the whole the products as compared to the traditional approaching method (389,000 388,750). Under ABC method, the per unit of measurement cost of product XYI = 39.25, YZT = 92.025, ABW = 73.583. On the other(a) hand, under traditional costing method, the costs per unit of the same product are XYI = 40.175, YZT = 92.475 and ABW = 71.45. From the data, it is clear that the per unit cost of products XYI and YZT under ABC method is less compared to the costs under the traditional costing method. The moreover exception to this fact is product ABW whose cost per unit under ABC method is higher than that under the traditional method.First, to establish a better platform for arguing the above statement, it is important to understand any(prenominal) basic knowledge in the costing process. Cost allocation is a concept th at refers to the determination of the expenses incurred to invite a service. Costs can be allocated as direct, indirect and incremental costs. In the production process, manufacturers should be able to determine what costs fall under direct, indirect and incremental, in order to facilitate the ascertainment of cost of production. Activity based Costing is a concept that refers to the ascertainment of various activities involved in the production of goods and services. Thereafter, the bang costs are allocated to each activity and then assigned to the products and services (Pound 2010, pp. 45-90).Traditional costing on the other hand, allocates overhead costs using predetermined rate. That is, there is no allocation of costs on activities prior to the products and services. According to Vercio and Shoemaker (2007, par 1-18), the most accurate method of cost allocation is Activity-Based. inappropriate traditional costing method, Activity Based Costing recognizes the fact that, durin g a production process, not all costs are