Ivory Corporation manufactures two products (A and B). The overhead costs have been divided into four cost pools that use the following activity drivers: Product Number of Orders Number of Set-ups Number of Labor Transactions Labor Hours A B Cost per pool 20 5 Rs.15,000 35 70 Rs.8,400 1,000 1,500 Rs.120,000 75 125 Rs.40,000 Required: Compute the allocation rates for each of the activity drivers listed. Allocate the overhead cost to Product A and B using activity-based-costing. Compute the overhead rate using machine hours under the functional based costing system. Allocate the overhead cost to Product A and B using the functional-based costing system overhead rate calculated in part C.
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.
Question No.5
Ivory Corporation manufactures two products (A and B). The overhead costs have been divided into four cost pools that use the following activity drivers:
Product |
Number of Orders |
Number of Set-ups |
Number of Labor Transactions |
Labor Hours |
A B Cost per pool |
20 5 Rs.15,000 |
35 70 Rs.8,400 |
1,000 1,500 Rs.120,000 |
75 125 Rs.40,000 |
Required:
- Compute the allocation rates for each of the activity drivers listed.
- Allocate the overhead cost to Product A and B using activity-based-costing.
- Compute the overhead rate using machine hours under the functional based costing system.
- Allocate the overhead cost to Product A and B using the functional-based costing system overhead rate calculated in part C.
Step by step
Solved in 2 steps