Question

You have completed the analysis of ABC and determined whether it is a good option for Jeemp Farms.

• Explain ABC costing and how it is different than traditional costing.
• Explain the advantages/disadvantages of using ABC costing.

Answer 1

Above question is about ABC costing and how it differs from traditional costing. And Advantages/Disadvantages of using ABC Costing. Refer below images for more detailed solution.
O Explain ABc costing and Costing 2. how different than tradtional Activity - based i dentifies of each activily Costing (ABC) is a Costing method Answer organi zation all products and Consomption by each and in an assigns Services activities That the cost to a ccording to actual the direct into îndirect This model assigns COsts more co sting . Conventional COosts lompared to ABC Costing more precised mettod of product costing. Traditiona) Costing 1. It is 1. Identify indirect Costs 2. Defined explanation of overheads Cost drivers . 2. Estimation of indirect cost and during particular period. 3. SUPports management techniqu Jes 3. Apply oveyhead to sevices by using predertermined continuad improvenent through and SCove cards. Ovexh ead Yates. Shows costly and non-value adding activities allowing reduce lor) eliminate. 4. 4. Cost diver associated more jorominent Upper managemenr to (labor hoors, machine hoors)- And predict predertermined overhead Cost with Vate.

Explain the advantages / dis ad vantoges of using ABC costing : Advantages of ABL casting: Answer:- - provides veolisic of manofac turing for Specific products. G. (osts A llocates manufacturing overhead and accorat ely to preducts activity. more processes that the Use processes and targets tor improvements. more precisely. » Sdentifies inefficient Determines product profit margins which processes have unnecessary better understand ing and jostification of costs Discovers and wasted COsts. in 6ffers manofactoring overhead. Dis advantages of ABC Costing: collecion and -> prepavation of data is Consoming. time Costs and analy3e Pnformation. more to a ccomulate Source data isn't always readily availeble from normal aclonting reports > Reports fvom ABC don't always confirm accounting princa ples and Data produced by ABC may perfor mance Stand ards previously established from tvaditional Costing -> to genevally acepted external reporting osed for be Can't -> Conflict with manag erial methods. May not be as oseful for companies Overhead where -> Small in total is proportion to opevating Costs-