AJ manufacturing company produces about one hundred products. Its largest selling product is product X and its smallest is product Y. relevant data is given below: Particulars Products X Product Y Total Product Units produced per anum 5000 1000 50000 Material cost per unit Rs 1 Rs 1 Direct labor per unit 15 min 15 min Machine time per unit 1 hour 1 hour No of set ups per unit 24 2 500 No of purchase orders for material 36 6 2800 No of times material handled 200 15 12000 Direct labor cost per hour Rs 5.00 Overhead costs: Set up
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 No.2
AJ manufacturing company produces about one hundred products. Its largest selling product is product X and its smallest is product Y. relevant data is given below:
| Particulars | Products X | Product Y | Total Product |
| Units produced per anum | 5000 | 1000 | 50000 |
| Material cost per unit | Rs 1 | Rs 1 | |
| Direct labor per unit | 15 min | 15 min | |
| Machine time per unit | 1 hour | 1 hour | |
| No of set ups per unit | 24 | 2 | 500 |
| No of purchase orders for material | 36 | 6 | 2800 |
| No of times material handled | 200 | 15 | 12000 |
| Direct labor cost per hour | Rs 5.00 | ||
| Overhead costs: | |||
| Set up | 280,000 | ||
| Purchasing | 145,000 | ||
| Material handling | 130,000 | ||
| Machines | 660,000 | ||
| Total Machine hours are 600,000 hours | 1,215,000 |
Required:
- Find out the production unit cost of product X and product Y.
- Using conventional product costing machine hour overhead absorption rate.
- Using ABC (Activity Base Costing ) compare the results of methods and comment.
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