In an organisation the smooth operation of operation of the business and the transaction depends on the proper and the logical maintaining of the cash and the transaction. The systematic recording and the systematic analysis of the transaction in accordance to the need is knows the costing. In the following assignment, the work of an organization is based on both traditional costing system and Activity Based costing system. The following assignment discussed on the comparison between both of the costing system in the organisation. In addition to the above the assignment also makes calculation based on the problems given in traditional based costing system and activity based costing system.
The Traditional Costing System
The traditional costing system uses the single volume based cost and it is well known to the readers and the observers of the assignment. As suggested by Lapašinskaitė and Boguslauskas (2015, p.21), the direct labour, direct cost and the all the direct information per unit of commodity is taken to the value of the product. The operation of the traditional based system is to manage the difference in the organisation on the bases of the volume of the product used for the production of another commodity. The traditional system uses different and specific methodology. As supported by Öker and Adıgüzel (2016, p.54), the success of the traditional costing system depends upon the availability of the volume balance and the per unit cost of the product.
With the success rate of the traditional costing system there are problems in operating under the underlying methodology of the system. In the methodology of the traditional costing system practitioners, adhere, that the products causes the price and the value o the commodity. As suggested by Lantz et al. (2016, p.845), the traditional costing system assumes that a cost is incurred, each time when any commodity is produced. However, this is not applicable to every product. The commodity is acceptable to only few direct costs in the production of a commodity. The assumption and the adhering o the assumption under the traditional costing system does not seem to work to its actual success point.
As mentioned by Kassler et al. (2015, p.110), the separation of the traceable and the fixed cost are important in doing and performing segmented report of the costing. The segmentation of the fixed cost is important as the fixed and the traceable cost includes the cost of the commodity form the fixed expenses of the entire department in collaboration of working for the production of the commodity. However, as argued by Meier et al. (2015, p.1219), the assumption and the adhering of the general guidelines for the marking of the traceable cost has inaccuracies and must be scrutinised.
The Activity Based Accounting System
As supported by Öker et al. (2016, p.55), the assumption of the activity and the methods of calculation of the cost in a production process in an organization, completely differs from the contemporary and the traditional system of accounting. The traditional based system assumes that the product produced in the organisation causes the cost of the commodity. On the other hand the Activity Based Costing System has activities that determine the funds and the drivers cost objects. The Activity Based Costing System assumes that the activity in an organisation for the production of the cost causes the determination of the cost. The Activity Based Costing System also enjoys the assumption, the cost jobs creates the rise in the demand of the product.
As suggested by Dwivedi and Chakraborty (2015, p.80), the Activity Based Costing follows the way of assuming that the activity adhered in the production of the product determines the cost of the commodity. The building blocks, the insertion prices, the fixing price all conclude to best of the product produced in general. The use of the Activity Based Costing system is useful in terms of understand in of the actual activities that generally take place and marks the difference in the actual activity and the inherited activity for the production of a commodity. As suggested by Tan et al. (2016, p. JOPR0077), the use of the Activity Based Costing system helps an organisation in development and the analysis of the product manufacturing and manufacturing time cycle.
The evolution of the every costing system marks the development of the costing system in use. As mentioned by Wu et al. (2015, p.83), the use of the activity based costing system helps in the accurate development of the system and the proper calculation of the price of a commodity.
Activity Based Costing: Determination of the difference in the budgeted and the actual cost required for the purchasing of the Cost Drives
Unit Cost (A)
Actual CD Unit cost (B)
Unit Cost (B)
Actual CD Unit cost
Total Indirect cost (A)
Total Indir cost (B)
Budgeted Cost Drivers
Hazardous waste disposed
Table 1: Determination of the difference in the budgeted and the actual cost
The differences of the standards and the cost variances occur due the changes inn the potential factors. The potential factors such as the taste and the preferences of the people may change. The change in the taste and the preferences may result in the change in the difference between the actual and the standard cost. The difference between the actual and the standard may occur due to the changes in the cost of the product in the market. The cost of the product in the market marks one of the most important factor foe the change in the actual and the standard cost a product. The work of the organisation needs to be different and in accordance in to the terms of the profitability. The profitability of the organisation also marks the development of the change in the actual and the standard price. The change in the price may be due to the change in the organisation plan. The organisation can change policy or plan of achieving a target after the budget is made. Thus, the changes in the actual and the standard are evident in frequent cases. The objective of the organisation however, remains to be in the best of the interest. The above table shows the budget cost and the actual cost of the product. The driving factors here are the products required for the production of the TV and PC. The table above shows the actual and the budgeted price of the product. The difference in the actual and the standee is to be determined to maintain the accuracy of the costing system. The proper availability of the information and the proper reliability of the work mark the success of the traditional costing system. The budgeted cost per unit of the process of the manual insertion for PC is given to be 3 and for TV are 17.5 per unit. Whereas, the actual cost of the manual insertion need to be 3.74 for every unit. The difference between the costs of the manual insertion in TV is much higher in comparison to B. Thus, the cost of A is wrongly placed and need to be amended. The cost driver for the hazardous waste is pound in waste. The standard budget for the disposal of the hazardous waste is 0.2 for the TV and 0.08 for the PC. However as per the table above the actual cost is to be 3 and thus it is evident that the price for the each product disposal in both cases is wrongly place and need to be amended. The price of the hazardous waste needs to be amended in terms of the organisation policy, so that the cost per driver does not make any discrepancies in the formation of the actual result. The actual cost of the parts needed to be procured is less.
The evaluation of the costing system in the organisation marks the development of the managing of the costing system. The difference of the costing system makes the development of the costing system in the field of financial accounting noticeable. From the above assignment it can be concluded that the traditional and the activity based system are two most form of costing system in the field of accounting. However, the systems are studded with both pros and cons. The development of the costing system eventually makes the activity of the organisation eligible. Thus the observation and the act of comparison in this assignment have proved a lot regarding the advantage and the disadvantage of the costing systems.
Dwivedi, R. and Chakraborty, S., (2015). An activity-based costing model for an engineering department of an Indian university. International Journal of Accounting and Finance, 5(1), pp.62-81.
Kassler, W.J., Tomoyasu, N. and Conway, P.H., (2015). Beyond a traditional payer—CMS's role in improving population health. New England Journal of Medicine, 372(2), pp.109-111.
Lantz, E., Mai, T., Wiser, R.H. and Krishnan, V., (2016). Long-term implications of sustained wind power growth in the United States: Direct electric system impacts and costs. Applied Energy, 179, pp.832-846.
Lapašinskaitė, R. and Boguslauskas, V., (2015). The maintenance cost allocation in product life cycle. Engineering Economics, 44(4), pp.17-23.
Meier, J.D., Zhang, Y., Greene, T.H., Curtis, J.L. and Srivastava, R., (2015). Variation in pediatric outpatient adenotonsillectomy costs in a multihospital network. The Laryngoscope, 125(5), pp.1215-1220.
Öker, F. and Adıgüzel, H., (2016). Time‐driven activity‐based costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), pp.39-56.
Tan, R.Y., Met-Domestici, M., Zhou, K., Guzman, A.B., Lim, S.T., Soo, K.C., Feeley, T.W. and Ngeow, J., (2016). Using Quality Improvement Methods and Time-Driven Activity-Based Costing to Improve Value-Based Cancer Care Delivery at a Cancer Genetics Clinic. Journal of Oncology Practice, p.JOPR007
Wu, X.F., Yang, Q., Xia, X.H., Wu, T.H., Wu, X.D., Shao, L., Hayat, T., Alsaedi, A. and Chen, G.Q., (2015). Sustainability of a typical biogas system in China: Emergy-based ecological footprint assessment. Ecological Informatics, 26, pp.78-84.
just share your requirements and get customized solutions on time
offer valid for limited time only*
someone in is bought