Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates: Activity Cost Pool Activity Measure Activity Rate Supporting direct labor Number of direct labor-hours $ 5.55 per direct labor-hour Batch processing Number of batches $ 107.00 per batch Order processing Number of orders $ 275.00 per order Customer service Number of customers $ 2,463.00 per customer The company just completed a single order from Interstate Trucking for 1,000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking’s only order during the year. Required: Calculate the customer margin on sales to Interstate Trucking for the year. (Round your answers to 2 decimal places.)
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.
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:
| Activity Cost Pool | Activity Measure | Activity Rate | ||
| Supporting direct labor | Number of direct labor-hours | $ | 5.55 | per direct labor-hour |
| Batch processing | Number of batches | $ | 107.00 | per batch |
| Order processing | Number of orders | $ | 275.00 | per order |
| Customer service | Number of customers | $ | 2,463.00 | per customer |
The company just completed a single order from Interstate Trucking for 1,000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking’s only order during the year.
Required:
Calculate the customer margin on sales to Interstate Trucking for the year. (Round your answers to 2 decimal places.)
Overhead costs = No. of activity x Activity Rate
Margin on sales = Direct materials cost - direct labor cost - Overhead costs
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