Management accounting - Essay Example

In context of a gallery overheads using traditional costing would first be gathered department wise (that are exhibition department, collection department, education department, shop selling products, and others) and then allocated to different exhibitions, seminars, and other activities of the museum on some suitable basis. On the other hands under ABC overhead costs are first assigned to major activities and not to departments before assigning them to products or services. ABC creates cost pools for service activities and overhead costs of these service activities are directly allocated to products or services by using cost drivers.

Activate based costing (ABC) is different as here costs are first accumulated for each of gallery activities and then those costs are assigned on the basis of appropriate measures (cost drivers) and their effects to exhibitions, seminars, and other activities of the museum. The objective of traditional costing is to allocate costs for the purpose of computing overall financial profits or losses. But the approach of ABC is to compute costs for each activity separately. Under ABC the gallery will have information about costs of holding exhibitions separately from costs of arranging seminars as allocation of common overheads relate to specific activity and not to all activities finding some convenient way to allocate them.

For example costs of white washing and decoration of exhibition hall for a specific exhibition will be an exhibition expense and not that of administration or housekeeping department to be allocated later to all activities of the museum or gallery. This reflects that traditional costing is influenced by financial reporting requirements. That is not the situation with ABC, where the costs are gathered primarily not for reporting only but for computing the impact of costs of each activity on different functions of the museum.

A dance director’s salary has nothing to with costs of