Question

assume that interest in a new basis of cost accounting at destin brass products remains high...

assume that interest in a new basis of cost accounting at destin brass products remains high ..in the following month,quantities produced and sold ,activities and cost were all at standard .how much higher or lower would be the net income reported under the activity .transaction-based system be than the net income that will be reported under the present ,more traditional system?why?

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Answer #1

Net Income reported under both methods will be same

Explanation:

Activity based costing method of cost allocation allocates cost based on activities consumed by each product. In traditional method the overheads is allocated as per direct labor hours or machine hours. ABC costing helps in accurate product costing since cost is allocated as per activities consumed by the products. The purpose of ABC method of costing is to ensure cost is allocated accurately but the overall net income reported under both the methods will remain the same. The changes will reflect in product level costing only through under or over-allocation which helps in decision making through product level profitability

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