Advantages Of Standard Costing Essays Examples

Management Accounting

Question 1 Trafalgar Cost Classifications
Question 2 Costs Calculations
Question 3 (a)
Standard costing. The costing is about determining an estimated cost for the activities of an organization. The main objective of using standard costs is because some activities consume a lot of time when information about costs is being looked for or quantified .
Job order costing is a costing system that groups costs relating to manufacturing for different jobs. It is mostly used by firms producing customized products or orders that are special. Example is a firm engaged in film making .
Process costing is a costing system that adds costs relating to manufacturing for each process in an organization. Mostly used for products that move to different departments in their production. An example is firm involved in mining of gold .
Activity-based costing is a costing system that is based on working on rate of activity and applying overhead costs to items being produced in consideration of usage of the activity .

Question 3 (b)

It is easy to budget for cost of an item and thus ease in budgeting . Another advantage is on cost control, variance between actual and standard costs will help management in knowing where variance costs are adverse and necessary action done .

Disadvantages Standard Costing

It is difficult to pay for cost-plus contracts. This is where a customer needs to be paid a profit in addition to cost incurred, in such cases knowing actual costs is paramount. .

Advantages of Job Order Costing

It helps in knowing the profit earned on jobs individually, this help in making decisions about specific jobs . It enables more monitoring of accounting system; it is easy to keep record of expenses relating to a particular job

Disadvantages of Job Order Costing

It is tiresome and cumbersome because all costs labor and material used in a product have to be tracked .
Advantages of Process Costing
It is easy to use when dealing with uniform products passing through a process; costs are easily divided to products going through same process. .

Disadvantages of Process Costing

Costing errors result because costs not related to production could be used as a result costs of items will be increased making the product expensive .

The Advantages of Activity-Based Costing

Business processes are improved because ABC helps in allocation of costs to activities that are profitable .
The Disadvantages of Activity-Based Costing
It is an expensive process because all business activities have to be analyzed and broken down to individual .
Question 3 ©
Predetermined overhead rate provides managers to the advantage of consistency; it helps in ensuring seasonal variations relating to costs for overhead costs are smoothed. The seasonal variations are usually as a result of costs relating to heating and cooling which increase during summer and on decline during spring seasons.
Predetermined overhead rate also help managers in planning for projects to be undertaken in future. Actual overhead rate cannot help in determining such costs. Predetermined overhead rate therefore helps managers to budget and make strategic decisions that are beneficial for a company.

Question 3 (d)

Activity-Based Costing Benefits
Activity based costing systems can be more relied than traditional costing systems because they provide information that are more accurate, this helps in decision making for issues such pricing and strategy to be used in sales . ABC helps in provision of better information on what overhead costs is being driven by than traditional costing systems another benefit is overhead costs are easily manageable through cost drivers management.ABC helps in complex business environment, costs can be calculated realistically. ABC costing can also be used in service industry to do costing just like in costing of products can

Activity-Based Costing Limitations

Activity based costing systems is not easy and simple to use as traditional costing systems .Some overhead costs cannot be allocated effectively to some activities, another limitation is choice of cost drivers and respective activity could be not the best. Dissemination of information about Activity-Based Costing could be complex to different parties involved in a costing exercise. .

Question 4 (a)

Question 4 (b)
Question 4 © Agreement with Financial Manager Statement
No I don’t agree
Reasons;
Separate billing rates indicate medical and staff costs used by maternity ward is far less at $ 500,000 compared to other wards
On other costs maternity ward still used the least costs at $625,000 compared to other wards
Question 4 (d) New Billing Rates Using New Cost Drivers
Question 4 (e)

References

Accounting Education. (2015, April). Advantages of Job Costing. Retrieved from Accounting Education: http://www.svtuition.org/2011/04/advantages-of-job-costing.html
Accounting Tools. (2015, April 23). Standard Costing. Retrieved from Accounting Tools: http://www.accountingtools.com/standard-costing
Jan, O. (2015, April 23). Cost Accounting Systems. Retrieved from Accounting Explained: http://accountingexplained.com/managerial/cost-systems/
Kaplan Financial Knowledge. (2015, April 23). Activity Based Costing. Retrieved from Kaplan Financial Knowledge: http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Activity%20Based%20Costing%20%28ABC%29.aspx?mode=none
Media, D., & Ingram, D. (2015, April 23). Advantages & Disadvantages of Job Order Costing & Process Costing. Retrieved from Chron: http://smallbusiness.chron.com/advantages-disadvantages-job-order-costing-process-costing-3082.html
Richards, L. (2015, April 23). What Is the Advantage of Using a Predetermined Overhead Rate? Retrieved from EHOW: http://www.ehow.com/info_12124456_advantage-using-predetermined-overhead-rate.html
Rojas, E., & Media, D. (2015, April 23). Small Business. Retrieved from The Disadvantages & Advantages of Activity-Based Costing: http://smallbusiness.chron.com/disadvantages-advantages-activitybased-costing-45096.html
Scheid, J. (2010, April 23). Standard Costing: A Quick Look at the Top Advantages. Retrieved from Bright Hub: http://www.brighthub.com/office/finance/articles/82421.aspx
Vitez, O., & Media, D. (2015, April 23). What Are the Advantages & Disadvantages of Process Costing? Retrieved from Chron: http://smallbusiness.chron.com/advantages-disadvantages-process-costing-4098.html
Wilkinson, J. (2013). Activity-based Costing (ABC) vs Traditional Costing. Retrieved from The Strategic CFO: http://strategiccfo.com/wikicfo/activity-based-costing-abc-vs-traditional-costing/