International ACCOUNTING and Finance Essay Example | Topics and Well Written Essays - 2500 words

International ACCOUNTING and Finance - Essay Example Unfortunately, the current method of costing has resulted to a drop in the profits of the company. Upon interviewing the present accountant, he admits that the old system is wanting but insist on continuing this cost accounting system because of the ease of computing the total factory overhead costs. The following paragraphs will dissect the current full cost accounting system and Davina’s recommendation that the activity based costing be immediately set up. The per machine hours method using 6,500 hours is better than the per direct labour hours method using 150% of direct labour hours (150% x 4,000 hours = 6,000 hrs) in recovering overhead costs. The above analysis of variances shows that the per hour cost of machine is lower under the direct labour hours method as compared to the direct labour by â‚ ¤4 per hour. Also, the Set up costs under the machine hours method shows that the per machine hour cost of â‚ ¤31 per hour is definitely lower than the per hour cost using the direct labour hours method amounting to the higher â‚ ¤33 per hour. Finally, the materials handling cost under the machine hours method amounting to only â‚ ¤18 per hour is definitely lower than the per hour cost of â‚ ¤20 per hour using the direct labour method. Method above shows that activity based costing gives us increase cost per hour. The standard products above shows that the per hour cost (blue color) above shows that the cost using machine activity cost driver unit is â‚ ¤ 79.86 per machine hour. And, overhead cost based on number of setups is â‚ ¤ 2,502.20 per set up. Likewise, overhead computation based on materials handling costs is â‚ ¤747.50 per materials handled. The specialized products computation above show that the cost per machine is â‚ ¤93.17 per machine hour. Also, the overhead cost based on the number of set up is â‚ ¤ 1,001 per set up. Likewise, the overhead costs based on materials handling is â‚ ¤398.57.