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Explanation & Answer
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College of Administrative and Financial Sciences
Assignment 2
Deadline: 20 /03/2021 @ 23:59 (End of week 9)
Course Name: Cost accounting
Student’s Name:
Course Code: ACCT 301
Student’s ID Number:
Semester: 1
CRN:
Academic Year: 1441/1442 H
For Instructor’s Use only
Instructor’s Name: KhaledAlmuaqel
Students’ Grade: Marks Obtained / Out of
Level of Marks: High/Middle/Low
Answer 1
The ABC system of costing is the modern alternative of traditional costing methods, allowing the
executives to understand the customer, product, and net profitability by giving a deep insight into
the information, which leads to informed decision making. The ABC primarily focuses on cost
drivers, which cause them to increase. Furthermore, the ABC uses Transaction based drivers
instead of volume-related, unlike traditional absorption costing. Instead of using labor hours, it
operates like the number of orders, making it easier for us to trace variable overheads and fixed
costs to products. Manufacturing, administrative, and selling cost are outlined in an ABC system.
The Process flow of ABC starts from the identification of costs that needs to be allocated, so
identifying advertising, warehousing costs related to the distribution channel and ignore research
as it relates to products.
Secondly, we need to identify the costs incurred for other services provided to another part of the
company rather than direct costs. The secondary pool typically consists of salaries, computer
services, etc. later on, these costs are allocated to other pools related to services and products.
Thirdly, create another cost pool for those having a closed link with the manufacturing of goods
and services, and it's likely having cost pools for every single product, which may include
procurement, R & D, advertising.
A data collection system is further used for the collection of information about drivers that
allocate costs in secondary pools to primary ones as well as assign pr...