Larsen, Inc., produces two types of electronic parts and has provided the following data: PartX12 PartYK7 Total Units produced 100,000 600,000 - Direct labour hours 30,000 70,000 100,000 Machine hours 50,000 300,000 350,000 Number of setups 40 80 120 Testing hours 1,000 9,000 10,000 Number of purchase orders 500 3,500 4,000 There are four activities: machining, setting up, testing, and purchasing. Required: Calculate the activity consumption ratios for each product. Calculate the consumption ratios for the plantwide rate (direct labour hours). When comparedwith the activity ratios, what can you say about the relative accuracy of a plantwiderate? Which product is undercosted? What if the machine hours were used for the plantwide rate? Would this remove the cost distortionof a plantwide rate?
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.
Larsen, Inc., produces two types of electronic parts and has provided the following data:
|
|
PartX12 |
PartYK7 |
Total |
|
Units produced |
100,000 |
600,000 |
- |
|
Direct labour hours |
30,000 |
70,000 |
100,000 |
|
Machine hours |
50,000 |
300,000 |
350,000 |
|
Number of setups |
40 |
80 |
120 |
|
Testing hours |
1,000 |
9,000 |
10,000 |
|
Number of purchase orders |
500 |
3,500 |
4,000 |
There are four activities: machining, setting up, testing, and purchasing.
Required:
- Calculate the activity consumption ratios for each product.
- Calculate the consumption ratios for the plantwide rate (direct labour hours). When comparedwith the activity ratios, what can you say about the relative accuracy of a plantwiderate? Which product is undercosted?
- What if the machine hours were used for the plantwide rate? Would this remove the cost distortionof a plantwide rate?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
