The Cost Accounting System of Bagalot PLC Coursework

The Cost Accounting System of Bagalot PLC - Coursework Example On the overall analysis, it can be stated that the cost system in Bagalot PLC is not appropriate and it requires certain changes. To justify this, light can be thrown on the findings of the internal team, which is appointed to study the overhead costs in both the plants. The findings can be summarised and demonstrated as follows: The above outcomes signify the importance of the production and post-production related activities. If the overhead cost of a product is calculated based on the production-run direct labor, then the other activities will be surely ignored. It implies that the adopted mechanism for the cost calculation is not effective as it takes into account only the partial costs. Based on the above explanation, it can be recommended to the Bagalot management to bring certain transformation in the host system or to change the method of the cost estimation. In this note, the management can be proposed to adopt ‘Activity-Based Costing’ (ABC). In this case, one question can crop up that whether both the plants should adopt the technique or not. It is true that variations in the activities are less in the Bath plant, but the mechanism of estimating overhead expenses is similar. Therefore, it will be better if ABC method can be applied to both the plants. There are several activities in Bristol plant and few activities in Bath plant. The activities are ‘receiving and production control’, ‘packaging and shipping’, ‘plant management and facilities’ and most importantly ‘set up labor’. By implementing ABC method, the organization will be able to monitor each activity that has a contribution in direct overhead. It will result in effective cost structure as well as transparent mechanism. In the last part, cost of each product of Bagalot has been calculated according to the activity-based costing method. In this portion of the paper, the profitability of the Briefcases based on the new approach (ABC method) will be computed. A comparative analysis of the old and new methods can be presented in a tabular format to figure out the best approach.