download free cs notes Activity Based costing In Traditional Method we split the Over Head incurred in production, based on machine hours which are not acceptable for many reasons. In ABC method Over Head are splited according to the related activity, for each type of Over Head. Overhead are apportioned among various Production cost centers on the basis of Activity cost drivers.
Question 1 - How has the composition of manufacturing costs changed during recent years?
How has this change affected the design of cost accounting systems?
Answer - Traditionally, manufacturing companies classified the manufacturing costs to be allocated to the products into
(a) direct materials.
(b) direct labour and
(c) indirect manufacturing costs. In the present day context, characterised by intensive global competition, large scale automation of manufacturing process, computerization and product diversification to cater to the changing consumer tastes and preferences has forced companies to refine their costing systems to provide better measurement of the overhead costs used by different cost objects. Accordingly, manufacturing costs are classified in to three broad categories as under: ?
Direct cost: As many total costs relating to cost objects as feasible are classified into direct cost. The objective is to trace as many costs as possible in to direct and to reduce the amount of costs classified into indirect because the greater the proportion of direct costs the greater
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