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Why traditional cost systems distort product costs because?
they emphasise financial accounting requirements
Why traditional costing distorts product cost information?
Traditional costing can distort product cost information because it often allocates overhead costs based on a single volume-based measure, such as direct labor hours or machine hours. This method fails to account for the complexity and diversity of products, leading to an inaccurate distribution of costs. As a result, products that require more overhead resources may be undercosted, while simpler products may be overcosted, leading to poor pricing decisions and profitability analysis. Such distortions can hinder effective strategic planning and resource allocation.
What systems provides for a separate record of the cost of each particular quantity of product that passes through the factory?
Job Order Cost System
What is the difference between traditional based costing and target costing?
Traditional Cost Accounting System: In this system company first produce the product and then determine the cost of production and then try to sell that product at price covering that cost plus certain percentage of markup on cost.Target Costing: In this system first of all company determines the value of product in the eyes of customer that is how much a customer is willing to pay for the product and then if cost of production of that product is more then the customer willing to pay then company makes analysis of how they can reduce the cost of production to the level of cost a customer willing to pay by reducing the components of product which is costing towards final price but not giving any value to customer and in this way company tries to acheive the target cost customer willing to pay.
What are the fundamental differences between the traditional absorption costing systems and the activity based costing systems?
Traditional absorption costing systems allocate manufacturing overhead to products based on a single volume-based measure, such as direct labor hours or machine hours, often leading to cost distortions. In contrast, activity-based costing (ABC) identifies and assigns costs to specific activities that drive overhead, using multiple cost drivers to reflect the true resource consumption of products. This results in more accurate product costing, enabling better pricing, profitability analysis, and decision-making. Ultimately, ABC provides insights into the cost structure that traditional methods may overlook.
Why traditional cost systems distort product costs because?
they emphasise financial accounting requirements
How do traditional cost assignment systems assign direct costs?
Traditional cost assignment systems typically would assign directly to the cost objects the costs of those resource consumptions that can be economically traced directly to units of output requiring the resources.
What is one disadvantage of traditional cost assignment systems?
high-volume, relatively simple product will end up overcosted and subsidizing a subsequently undercosted, low-volume, relatively complex product, resulting in inaccurate unit costing and suboptimal product-line pricing decisions
WHAT ARE THE LIMITATION OF TRADITIONAL COST SYSTEM?
Traditional cost systems often struggle with accurately capturing indirect costs and may allocate overhead based on simplistic methods, leading to distorted product costs. They typically do not account for the complexities of modern manufacturing environments, such as automation and diverse product lines. Additionally, these systems can be inflexible, making it difficult to adapt to changes in production processes or market conditions. Consequently, businesses may make suboptimal pricing and production decisions based on inaccurate cost data.
Why traditional costing distorts product cost information?
Traditional costing can distort product cost information because it often allocates overhead costs based on a single volume-based measure, such as direct labor hours or machine hours. This method fails to account for the complexity and diversity of products, leading to an inaccurate distribution of costs. As a result, products that require more overhead resources may be undercosted, while simpler products may be overcosted, leading to poor pricing decisions and profitability analysis. Such distortions can hinder effective strategic planning and resource allocation.
What systems provides for a separate record of the cost of each particular quantity of product that passes through the factory?
Job Order Cost System
What is the difference between traditional based costing and target costing?
Traditional Cost Accounting System: In this system company first produce the product and then determine the cost of production and then try to sell that product at price covering that cost plus certain percentage of markup on cost.Target Costing: In this system first of all company determines the value of product in the eyes of customer that is how much a customer is willing to pay for the product and then if cost of production of that product is more then the customer willing to pay then company makes analysis of how they can reduce the cost of production to the level of cost a customer willing to pay by reducing the components of product which is costing towards final price but not giving any value to customer and in this way company tries to acheive the target cost customer willing to pay.
What are the fundamental differences between the traditional absorption costing systems and the activity based costing systems?
Traditional absorption costing systems allocate manufacturing overhead to products based on a single volume-based measure, such as direct labor hours or machine hours, often leading to cost distortions. In contrast, activity-based costing (ABC) identifies and assigns costs to specific activities that drive overhead, using multiple cost drivers to reflect the true resource consumption of products. This results in more accurate product costing, enabling better pricing, profitability analysis, and decision-making. Ultimately, ABC provides insights into the cost structure that traditional methods may overlook.
What are the differences between activity-based absorption costing system and traditional absorption costing system?
An activity-based absorption costing system defines the cost by how many activities a product unit uses. A traditional absorption costing system defines the cost by how much money went into making the product unit.
Is depreciation on a machine a period cost or product cost?
product cost
Is factory supplies a product cost or period cost?
Product cost
Cost of a delivery truck is a period cost or product cost?
Should typically be a product cost.
