Management acccounting Assignment Example | Topics and Well Written Essays - 1250 words

Management acccounting - Assignment ExampleThe intention of any costing system is non to replace an accounting system but instead, to work within the broad frameworks of the accounting systems by extracting proper(postnominal) data for ease and speed in analysis (Barnett 2007).Costing systems exists in many forms two of which argon the Conventional Absorption Costing and the Activity base Costing (ABC). The conventional Absorption costing is a costing technique where all the be associated with the production of the good or the service argon considered it is as well as called full costing (Mevellec 2009). It is used with the intent of giving the full picture of a companys financial situation. Activity Based Costing on the other hand involves cost allocation ground on cost drivers and they are known to provide companies with the most accurate costs for the products they produce condescension the fact that they are time consuming to prepare. For ABC costing, direct materials, dir ect labor and manufacturing overhead result each have a cost driver this will aid the application of the costs to the goods and services (Gosselin 2005).A comparison of the Conventional Absorption costing which is the traditional method applied and the Activity Based Costing, which is the modern approach, indicates that in most of the products, the ABC profits are higher than the Traditional cost profits. magical spell the Traditional Method gives a total profit of 386,000, the ABC profits are 389,010 ABCs profits are higher by 3,010. This difference may first be attributed to the approach and assumptions that are applied by either method to arrive at the profits. The traditional systems are known to obligate the single volume-based cost driver approach, which has the tendency of distorting the costs of the products (Mevellec 2009). It does this by assigning the overhead costs to the various(prenominal) products based on how they utilize direct labor making the systems report in accurate product costs (Barnett