Calculating Activity-Based Costing Overhead Rates Assume that manufacturing overhead for Glassman Company consisted of the following activities and costs: Setup (1,000 setup hours) $148,000 Production scheduling (400 batches) 64,000 Production engineering (60 change orders) 120,000 Supervision (2,000 direct labor hours) 56,000 Machine maintenance (12,000 machine hours) 84,000 Total activity costs $472,000 The following additional data were provided for Job 845 Direct materials costs $8,000 Direct labor cost (5 Milling direct labor hours; 35 Finishing direct labor hours) $2,000 Setup hours 5 hours Production scheduling 1 batch Machine hours used (25 Milling machine hours; 5 Finishing machine hours) 30 hours Production engineering 3 change orders a. Calculate the cost per unit of activity driver for each activity cost category. Setup Production scheduling cost Production engineering cost Supervision cost Machine operating cost b. Calculate the cost of Job 845 using ABC to assign the overhead costs. Job 845 Direct materials cost Direct labor cost Manufacturing overhead costs: Setup costs Production scheduling Production engineering Supervision Machine operations Total cost c. Calculate the cost of Job 845 using a company-wide overhead rate based on machine hours. First, compute company-wide overhead rate using machine hours (Note: Information needed for this computation can be found in the table below in part d.) Round rate to two decimal places. $Answer per machine hour Next, use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Job 845 Direct materials cost Direct labor cost Manufacturing overhead cost: Total cost
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.
Calculating Activity-Based Costing Overhead Rates
Assume that manufacturing overhead for Glassman Company consisted of the following activities and costs:
| Setup (1,000 setup hours) | $148,000 |
| Production scheduling (400 batches) | 64,000 |
| Production engineering (60 change orders) | 120,000 |
| Supervision (2,000 direct labor hours) | 56,000 |
| Machine maintenance (12,000 machine hours) | 84,000 |
| Total activity costs | $472,000 |
The following additional data were provided for Job 845
| Direct materials costs | $8,000 |
| Direct labor cost (5 Milling direct labor hours; | |
| 35 Finishing direct labor hours) | $2,000 |
| Setup hours | 5 hours |
| Production scheduling | 1 batch |
| Machine hours used (25 Milling machine hours; | |
| 5 Finishing machine hours) | 30 hours |
| Production engineering | 3 change orders |
a. Calculate the cost per unit of activity driver for each activity cost category.
| Setup |
|
| Production scheduling cost |
|
| Production engineering cost |
|
| Supervision cost | |
| Machine operating cost |
|
b. Calculate the cost of Job 845 using ABC to assign the overhead costs.
| Job 845 | ||
|---|---|---|
| Direct materials cost | ||
| Direct labor cost | ||
| Manufacturing overhead costs: | ||
| Setup costs | ||
| Production scheduling | ||
| Production engineering | ||
| Supervision | ||
| Machine operations | ||
| Total cost |
c. Calculate the cost of Job 845 using a company-wide overhead rate based on machine hours.
First, compute company-wide overhead rate using machine hours (Note: Information needed for this computation can be found in the table below in part d.)
Round rate to two decimal places.
$Answer per machine hour
Next, use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed.
| Job 845 | |
|---|---|
| Direct materials cost | |
| Direct labor cost | |
| Manufacturing overhead cost: | |
| Total cost |
d. Calculate the cost of Job 845 using a machine hour departmental overhead rate for the Milling Department and a direct labor hour overhead rate for the Finishing Department.
| Milling Department manufacturing overhead | $348,000 |
| Finishing Department manufacturing overhead | $124,000 |
| Machine hours used | |
| Milling Department | 10,000 hours |
| Finishing Department | 2,000 hours |
| Labor hours used | |
| Milling Department | 1,000 hours |
| Finishing Department | 1,000 hours |
Round rates to two decimal places, if needed.
$Answer per Milling Dept. machine hour
$Answer per Finishing Dept. direct labor hour
Use rounded overhead rates calculated above for calculations below. Round cost answers to the nearest whole number, when needed.
| Job 845 | |
|---|---|
| Direct materials cost | |
| Direct labor cost | |
| Manufacturing overhead costs: | |
| Milling Department | |
| Finishing Department | |
| Total cost |
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