.What is the total cost and gross margin per unit for the Basic and Hi-Tech models assuming FSC uses a traditional costing system? 2.FSC is looking at adopting an activity based costing system instead of using the traditional costing system. Preliminary work shows that manufacturing overhead costs can be sorted into 4 activity cost pools as follows: Expected Activity Activity Activity Measure Estimated Overhead Costs Basic Hi-Tech Total Supporting direct labour direct labour hours $ 1,150,000 150,000 75,000 225,000 Batch costs # of setups 1,240,000 75 275 350 Product related # of products 210,000 1 1 2 Other square feet 100,000 15,000 17,500 32,500 $ 2,700,000 3. What is the total cost and the gross margin per unit for the Basic and the Hi-tech models using Activity Based Costing? 4.Comment on the difference in the resulting cost per unit for each model between the traditional costing and activity-based costing. Which is more accurate? Why?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Filling Smoker Company (FSC) makes two types of barbeque smokers - Basic and Hi-Tech. Here is information about these two product lines:
| Basic | Hi-Tech | ||
| Selling price per unit | $ 430 | $ 670 | |
| Direct materials per unit | 165 | 425 | |
| Direct labor per unit | 60 | 90 | |
| Direct labor hours per unit | 2.0 | 3.0 | |
| Estimated annual unit sales | 75,000 | 25,000 | |
| (assume inventory is constant) |
FSC has a traditional costing system where manufacturing overhead is applied to units on the basis of direct labor hours. FSC estimates that for the upcoming year it will incur:
| Estimated manufacturing overhead | $ 2,700,000 |
| Estimated total direct labor hours | 225,000 |
1.What is the total cost and gross margin per unit for the Basic and Hi-Tech models assuming FSC uses a traditional costing system?
2.FSC is looking at adopting an activity based costing system instead of using the traditional costing system. Preliminary work shows that
| Expected Activity | |||||
| Activity | Activity Measure | Estimated Overhead Costs | Basic | Hi-Tech | Total |
| Supporting direct labour | direct labour hours | $ 1,150,000 | 150,000 | 75,000 | 225,000 |
| Batch costs | # of setups | 1,240,000 | 75 | 275 | 350 |
| Product related | # of products | 210,000 | 1 | 1 | 2 |
| Other | square feet | 100,000 | 15,000 | 17,500 | 32,500 |
| $ 2,700,000 |
3. What is the total cost and the gross margin per unit for the Basic and the Hi-tech models using Activity Based Costing?
4.Comment on the difference in the resulting cost per unit for each model between the traditional costing and activity-based costing. Which is more accurate? Why?
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