Paff 2021 Unit 5 Essay

Name: Lu Xin Yi. Student ID: s8107593.

Section B G. Explain why you feel the activities and the cost drivers you selected in Part A of Section A are appropriate for this business? The selected activities and cost drivers for Style Ltd are well-matched with its operations. Machine setups play a crucial role in product transitions, directly influencing changeover costs. The handling of materials is connected to unit volume, offering insight into resource utilization. Packaging costs are directly proportional to the number of units packaged, aligning seamlessly with the company's expanding product lines. Machine maintenance hours are a reflective measure of the resources required for equipment upkeep. The number of product lines serves as an

Examine the figures calculated in section A (Part C & Part E). Discuss why the unit cost for the GEN and the MUK are different between the two techniques used. The unit costs for GEN and MUK may vary between the traditional costing system and the Activity-Based Costing (ABC) system, primarily because of the distinct methods used to allocate overhead costs to products. Under the traditional costing system, overhead costs are assigned to products using a single cost driver, typically the amount of direct labour hours utilized (Paff, 2021). In contrast, the ABC system employs multiple cost drivers that mirror various activities within Style Ltd (Paff, 2021). These activities encompass machine setups, material handling, product packaging, machine maintenance, inventory management, and quality inspection. ABC aims to provide a more accurate representation of resource consumption patterns associated with different activities (Paff, 2021), potentially resulting in differences in unit costs from the traditional costing system. Activity Cost driver Machine setups Number of machine set ups Material handlings Number of units handled Product packaging Number of units packaged Machine maintenance Number of machine maintenance hours Inventory management Number of product line Quality inspection Number of

Explain whether Style Ltd should or should not move towards an ABC system. Reference must be made to the business in question. Style Ltd should shift to an Activity-Based Costing (ABC) system, particularly given its prevalence in the manufacturing industry where it plays a pivotal role in enhancing the reliability of cost data (Kenton, 2023). Given Style Ltd's diverse hairdryer production involving complex activities, ABC's nuanced approach to capturing these intricacies makes it more suitable. Net profit per unit under traditional costing system: GEN MUK $ 120.10 $ 63.00 Net profit per unit under ABC system: GEN MUK $ 127.18 $ 78.53.

Additionally, the adoption of ABC has the potential to increase net profit per unit compared to traditional costing. The refined cost allocation provided by ABC, which considers multiple cost drivers and accurately reflects resource consumption patterns, can lead to a more precise determination of product