ACTIVITY BASED COSTING

Activity Based Costing

Activity Based Costing

Ans1- The two budget control statements would be prepared that would demonstrate the production, planning and development department for the period ending on 31st October. The variances in the budget will be calculated by comparing the actual cost with budgeted figures. Therefore, the values would be:

Details

Budgeted results (fixed budget)

Actual results

Difference in Variance Amount

Variance (favourable/unfavourable

Sales quantities

240000

240000

 

-

Sales revenue

2800800

$3,000,000

$199,200

Favourable

Material cost

960000

$110,000

($850,000)

Unfavourable

Labour cost

$640,800

$600,000

$40,800

Favourable

Other direct costs

$79,200

$80,000

($800)

Unfavourable

Fixed production costs

$50,000

$50,000

$0

 -

The table shows the amount of variances that occurred for every value. In the first phase, it was the Budgeted results and in the second phase it was the Actual Results. The company showed a positive data for the Sales Revenue figure and Labour Cost figure. Though, the some figures were not positive such as Material Cost and other direct costs. This happens for any company as they cannot have all positive figures. Though, the importance of budgeted figures is high because it provides them to focus on the targets for the future. Therefore, this is the Company's Variance Analysis for October 2013.

Ans2- The advantages of using activity based budgeting over traditional budgeting is certainly there for the organization. The traditional budgeting also has its own importance but the activity based budgeting provides a much better option to the accountants. The five advantages for activity based costing are:

The improvement of the profitability by monitoring the total life cycle cost and performance. The constant monitory of the total life cycle would help the company in having important information related to the profitability figures.

The steps taken for improving the effectiveness of budgeting by identifying the cost/performance relationship of different service levels is also important. The identification of the cost/performance relationship also matters considerably for the organization. This provides an opportunity to the organization in preparing strategy for the management of budget statements.

The steps taken for encouraging the continuous improvement and total quality control in the organization. This also leads to planning and control directed at process level. This factor is certainly vital for the organization because the process level needs to be properly managed.

The linking of corporate strategy to operational decision making is also an important element for the organization. The corporate strategy is the major requirement for preparing operational decision making issues for the organization.

The facilitation related to the elimination of waste by providing visibility of non-value added activities is the main requirement for suitable functioning of the organization (Chan, 2003, 322).

Ans3- The figures used in the first question related to the Activity Based Costing are the main headings that have a lot of value. The Activity Based figures cannot be calculated with the help of these terms. In fact, the Budgeted Statements are also prepared with the help of the major terms. The additional information used in the Activity Based Costing has a lot of value as it is widely used in other accounting statements as ...