A company has two production cost centers and two service cost centers. The following details have been provided: Total Production cost centers Service cost centers Assembly Finishing Canteen Maintenance Floor space (Square meters) 10,000 6,900 2,400 400 300 Cubic capacity (Cubic meters) 20,000 15,000 3,000 1,000 1,000 Number of employees 30 15 6 3 6 Direct labour hours - 4,500 1,040 - - Machine hours - 1,500 3,500 - - The overhead costs estimated for the period are as follows: £ Rent 40,000 Heat and light 10,000 Welfare costs 5,000 Supervisors – Assembly Department 2,500 Supervisors – Finishing Department 4,000 Machine repair cost 8,000 The work done by the service cost centers for the production cost centers are as follows: Work done by Assembly Finishing Stores Maintenance Canteen 50% 40% - 10% Maintenance 60% 40% - - Required Using the information, calculate the following: The overheads allocated and apportioned to each department The total overheads included in the production departments after reapportioning the service center costs The overhead absorption rate (to 2 decimal points) for each production department, explaining the reasons for the base that you have used in each case. The overhead cost that should be charged per unit, if this company produces a single product for which the following details apply: Assembly time required Finishing time required Labour hours 4 hours 2 hours Machine hours 5 hours 4hours
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.
Question 01
A company has two production cost centers and two service cost centers. The following details have been provided:
|
|
Total |
Production cost centers |
Service cost centers |
||
|
|
|
Assembly |
Finishing |
Canteen |
Maintenance |
|
Floor space (Square meters) |
10,000 |
6,900 |
2,400 |
400 |
300 |
|
Cubic capacity (Cubic meters) |
20,000 |
15,000 |
3,000 |
1,000 |
1,000 |
|
Number of employees |
30 |
15 |
6 |
3 |
6 |
|
Direct labour hours |
- |
4,500 |
1,040 |
- |
- |
|
Machine hours |
- |
1,500 |
3,500 |
- |
- |
The overhead costs estimated for the period are as follows:
|
|
£ |
|
Rent |
40,000 |
|
Heat and light |
10,000 |
|
Welfare costs |
5,000 |
|
Supervisors – Assembly Department |
2,500 |
|
Supervisors – Finishing Department |
4,000 |
|
Machine repair cost |
8,000 |
The work done by the service cost centers for the production cost centers are as follows:
|
Work done by |
Assembly |
Finishing |
Stores |
Maintenance |
|
Canteen |
50% |
40% |
- |
10% |
|
Maintenance |
60% |
40% |
- |
- |
Required
Using the information, calculate the following:
- The overheads allocated and apportioned to each department
- The total overheads included in the production departments after reapportioning the service center costs
- The overhead absorption rate (to 2 decimal points) for each production department, explaining the reasons for the base that you have used in each case.
- The overhead cost that should be charged per unit, if this company produces a single product for which the following details apply:
Assembly time required Finishing time required
Labour hours 4 hours 2 hours
Machine hours 5 hours 4hours
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