Expected Quantity Process Activity Cost Activity Driver Cutting and Welding S 776,000 Welding Machining Inspecting Materials handling Setups Welding hours Machine hours No. of inspections 4,000 450,000 448,250 10,000 1,000 300,000 No. of batches 12,000 240,000 No. of setups 100 Changeover Rework S2,214.250 S 180,000 61,750 Changeover hours Rework orders Assembly 1,000 50 750 Testing Materials handling Engineering support 300,000 No. of tests 380,000 130,000 No. of parts Engineering hours 50,000 2,000 S1,051,750 Note: In the assembly process, the materials-handling activity is a function of product characteristics rather than batch activity. Other overhead activities, their costs, and drivers are listed below. Activity Cost Activity Driver Quantity 500 Purchasing Receiving Paying suppliers Providing space and utilities S135,000 274,000 225,000 Purchase requisitions Receiving orders No. of invoices 2,000 1,000 100,000 Machine hours 10,000 S734,000 Other production information concerning the two hydraulic cylinders is also provided: Cylinder A Cylinder B Units produced Welding hours 1,500 1,600 3,000 2,400 3,000 500 Machine hours 7,000 Inspections Moves 500 7,200 4,800 Batches 45 55 Changeover hours Rework orders 540 460 5 45 No. of tests 500 250 Parts 40,000 10,000 Engineering hours Requisitions Receiving orders 1,500 500 425 75 1,800 200 Invoices 650 350
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.
Activity-Based Costing, Reducing the Number of Drivers and Equal
Accuracy Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the sub-
assembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below.
Required:
1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned
to each product and the unit overhead cost.
2. Using activity rates, calculate the total overhead cost assigned to each product and the unit
overhead cost. Comment on the accuracy of the plantwide rate.
3. Calculate the global consumption ratios.
4. Calculate the consumption ratios for welding and materials handling (Assembly) and show
that two drivers, welding hours and number of parts, can be used to achieve the same ABC
product costs calculated in Requirement 2. Explain the value of this simplification.
5. Calculate the consumption ratios for inspection and engineering, and show that the drivers
for these two activities also duplicate the ABC product costs calculated in Requirement 2.
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