If we skipped a step and went straight to apportioning the cost (for ABC Costing) , would we lose marks?

For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?

Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it’s just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.

ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?

1. By all means miss out the steps (unless it is specifically asked for in the question). Just make sure if it is in Section C that you still show workings in case you make an arithmetical mistake.

2. Assuming they sell all they they produce, then the total profit will stay the same. You can’t just add together the unit profits. The total profit is calculated by multiplying the units by the profit per unit for each product separately, and then adding the totals together.

Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it’s just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.

ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?

If we skipped a step and went straight to apportioning the cost (for ABC Costing) , would we lose marks? For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?

Thank you John. I think ABC is much more fairer and appropriate than traditional AC when dealing with overheads based on the activities that give rise to the cost. As a result, this should lead accurate cost per unit and hence better decision making. However, is it in all cases one can expect the results of ABC to be different from AC?

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louwqi says

If we skipped a step and went straight to apportioning the cost (for ABC Costing) , would we lose marks?

For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?

Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it’s just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.

ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?

Perhaps i missed something…

John Moffat says

1. By all means miss out the steps (unless it is specifically asked for in the question). Just make sure if it is in Section C that you still show workings in case you make an arithmetical mistake.

2. Assuming they sell all they they produce, then the total profit will stay the same. You can’t just add together the unit profits. The total profit is calculated by multiplying the units by the profit per unit for each product separately, and then adding the totals together.

louwqi says

Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it’s just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.

ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?

Perhaps i missed something…

louwqi says

If we skipped a step and went straight to apportioning the cost (for ABC Costing) , would we lose marks?

For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?

divinekay says

Still find it difficult to get how you calculated labour

John Moffat says

The labour per unit is part of the costing, but is not activity based (ABC only applies to the overheads).

The question gives the labour hours per unit, and also gives the rate per hour – so you must multiply the two together!

(I assume that you do have the free lectures notes containing the example in front of you?)

alie2018 says

Thank you John. I think ABC is much more fairer and appropriate than traditional AC when dealing with overheads based on the activities that give rise to the cost. As a result, this should lead accurate cost per unit and hence better decision making. However, is it in all cases one can expect the results of ABC to be different from AC?

John Moffat says

Yes 🙂