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Essay / Research Paper Abstract
This 4 page paper is based on an accounting case study supplied by the student. The paper demonstrates the way that New Millennium Linen can assess their costs using traditional costing techniques and activity based costing.
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4 pages (~225 words per page)
File: TS14_TEnewmillabc.rtf
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profitability. Just as customers may generate different levels of revenue, they may also generate different levels of costs. To asses the value of particular customers the cost of those customers
needs to be assessed as well as the revenues. In order to assess the cost of the customers, and as such the real profitability the New Millennium Linen Company want
to compare the different firms and the way coasts can be allocated. Allocating costs based on revenue The traditional way of allocating costs was often on a proportional
basis, allocating costs based on the level of sales that were received. This can be applied to New Millennium Linen, the cost of order placements, sales calls and deliveries
have all be given, along with the total amount of revenue from each source. Using this we can calculate the proportion of revenue from each source and then use that
to allocate the relevant proportion of each of these costs. This is shown below Total Revenues Proportion Proportional order costs Proportional sales call costs Proportional shipment costs Total
Department stores 150,000 0.3 12,000 24,000 18,000 54,000 Speciality shops 100,000 0.2 8,000 16,000 12,000 36,000 Gift shops 250,000 0.5 20,000 40,000 30,000 90,000 Total 500,000 1 40,000 80,000 60,000
180,000 This makes an assumption that there is a even spread of costs, but it is noted in the case study
that some customers need more support than others, so this is not the case and as such the use of activity based costing is likely to be more effective at
indicating the true cost of serving each type of customer. Costs using activity based costing Activity based costing has the aim of allocating the costs in a way
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