Traditional Overhead Costinging Vs. Activity-Based Overhead Costing

(iv) Traditional Overhead Costing vs Activity Based Overhead Costing

Activity based costing deals with the key activities in which the firm’s resources are put. It accumulates overhead costs for each such activity. It is also used in determining the drivers of these activities. It assigns the cost of these activities to their ultimate cost centre. Activity based costing is rather a refinement over traditional costing system.
The major differences are as follows:
 Under traditional costing, the overheads are accumulated in a single cost pool. Under activity based costing, the overhead costs are broken down into different cost pools that corresponds to a key activity.
 In traditional costing, the overhead costs are assigned to common cost
70,000 and estimated direct labour hours are 1,20,000 hours. The overhead absorption rate by direct labour hour method will be:
a) 77.7% b) Rs. 0.58 per hour
c) Rs. 2.80 per hour d) 83.5%

7) Estimated factory overhead is Rs. 70,000 and estimated machine hours are 26,000 hours and idle time of machine is 10,000 hours. The overhead absorption rate by direct machine hour method will be:
a) 77.7% b) Rs. 0.58 per hour
c) Rs. 2.80 per hour d) 83.5%

8. Which of the following is taken into consideration while selecting a method of absorption of factory overhead?
a) Total amount recovered in a period is the same as expenses estimated
b) Amount charged to multiple products is same
c) Variable yield from period to period
d) Accommodation of any change in the situation

9) Which method of absorption of factory overhead combines both direct material cost and direct labour cost?
a) Percentage of direct material cost b) Percentage of direct labour cost
c) Percentage of prime cost d) Direct labour hour rate
10) In which of the following conditions percentage of direct material cost is applied?
a) Material prices vary
b) Overheads are related to material
According to ICMA, London, cost sheet is “a statement which provides for the assembly of the detailed cost of a cost centre or a cost unit.” Thus, a cost sheet displays the information about the costs in a logical order under several heads. A cost sheet shows various components of total cost of output of a particular product or service produced during a particular period. It is prepared weekly, fortnightly, monthly, quarterly, half-yearly or yearly.
A cost sheet can be prepared in the following two ways:
• Historical cost sheet: A cost sheet developed based on the costs that have been incurred in the production of a good is said to be a historical cost sheet. It is prepared on the basis of actual cost that has been incurred. It is prepared on annual basis, monthly basis or quarterly basis.
• Estimated cost sheet: A cost sheet prepared in advance in anticipation of production in a particular period is known as an estimated cost sheet. Such cost sheets are prepared way before the production actually begins. Estimated cost sheets are prepared every week, month, quarter or year. In addition, these sheets form the basis for developing and submitting tenders and