Cost per unit for each product using Absorption costing Cost per unit for each product using ABC Identify products for which under costing and/or over costing is observed.
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.
MHM Manufacturing Company is currently engaged in the production of three products; A, B and C. These products use the same raw materials, though the quantity differs. Details of quantity required to product each unit is provided herewith.
|
|
A |
B |
C |
|
Direct Material (Units) |
2 |
3.5 |
4 |
|
Direct Labor (No. of hours) |
4 |
6 |
8 |
Direct materials cost RO3.2 per unit while the direct labor costs are RO5 per hour.
For many years, the company has been using absorption costing for allocating
A mark up on 40% of cost is provided, while fixing the selling price of all products. This is common within this industry, with most competitors applying a standard mark-up. The budgeted production of these products are given below
|
|
A |
B |
C |
|
Budgeted Production |
5,000 |
6,000 |
10,000 |
Details of overhead are given below.
|
|
Total |
|
Machine Set Up Costs |
25,000 |
|
Procurement expenses |
30,000 |
|
Machine running costs |
55,000 |
|
After Sales Support |
20,000 |
Details of the cost drivers are given below;
|
|
A |
B |
C |
|
No. of machine set up |
40 |
30 |
30 |
|
No. of purchase orders |
300 |
400 |
300 |
|
Machine hours per unit |
2 |
4 |
6 |
|
No. of visits to the customer |
100 |
150 |
50 |
You are required to calculate:-
- Cost per unit for each product using Absorption costing
- Cost per unit for each product using ABC
- Identify products for which under costing and/or over costing is observed.
- Calculate Selling price, using a markup of 40% on cost for all products.
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