Bella Clear Windows designs and builds custom windows for luxury homes. Most of the windows are custom made but occasionally the company does mass production on order. Its budgeted manufacturing overhead costs for the year 2017 are as follows: Overhead Cost Pools Amount Purchasing$ 26,000 Production (cutting, milling, finishing)176,000 Setting up machines65,000 Inspecting35,000 Utilities 75,000 Total budget overhead costs$377,000 For the last three years, the company has been allocating overhead to products on the basis of machine hours. For the year 2017, 20,000 machine hours are budgeted. The operations manager of Bella Clear recently directed her accountant to implement the activity-based costing system she has repeatedly proposed. The accountant and production foreman identified the following cost drivers and their usage for the previously budgeted overhead cost pools: Overhead Cost Pools Activity Cost DriversTotal Activity PurchasingNumber of orders80 Production (cutting, milling, finishing)Direct labor hours16,000 Setting up machinesNumber of setups250 InspectingNumber of inspections1,250 UtilitiesSquare feet occupied15,000 During this month, the company received an order for 80 windows from a housing development contractor. The accountant prepared cost estimates for producing components for 80 windows to submit a contract price per window set to the contractor. The following data for the production of 80 windows is accumulated: Direct materials$22,000 Direct labor$23,100 Machine hours1,600 Direct labor hours2,100 Number of purchase orders8 Number of machine setups15 Number of inspections12 Number of square feet occupied1,200 Instructions (a)Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (b)Compute the manufacturing cost per window under traditional costing. (c)Compute the manufacturing cost per window under the proposed activity-based costing system.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Bella Clear Windows designs and builds custom windows for luxury homes. Most of the windows are custom made but occasionally the company does mass production on order. Its budgeted manufacturing overhead costs for the year 2017 are as follows:
Overhead Cost Pools Amount
Purchasing$ 26,000
Production (cutting, milling, finishing)176,000
Setting up machines65,000
Inspecting35,000
Utilities 75,000
Total budget overhead costs$377,000
For the last three years, the company has been allocating overhead to products on the basis of machine hours. For the year 2017, 20,000 machine hours are budgeted.
The operations manager of Bella Clear recently directed her accountant to implement the activity-based costing system she has repeatedly proposed. The accountant and production foreman identified the following cost drivers and their usage for the previously budgeted overhead cost pools:
Overhead Cost Pools Activity Cost DriversTotal Activity
PurchasingNumber of orders80
Production (cutting, milling, finishing)Direct labor hours16,000
Setting up machinesNumber of setups250
InspectingNumber of inspections1,250
UtilitiesSquare feet occupied15,000
During this month, the company received an order for 80 windows from a housing development contractor. The accountant prepared cost estimates for producing components for 80 windows to submit a contract price per window set to the contractor. The following data for the production of 80 windows is accumulated:
Direct materials$22,000
Direct labor$23,100
Machine hours1,600
Direct labor hours2,100
Number of purchase orders8
Number of machine setups15
Number of inspections12
Number of square feet occupied1,200
Instructions
(a)Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
(b)Compute the
(c)Compute the manufacturing cost per window under the proposed activity-based costing system.
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