Management was very concerned that their traditional method of costing may no longer be appropriate and wanted to consider using the ABC costing method. It has been suggested that three Cost pools be established, with the following cost Drivers, and the Overhead cost be shared among them as follows: Cost Pool Amount Cost Driver Assembling $ 50,000 Labour cost Manufacturing $ 54,000 Labour Hours Inspecting $ 16,000 Number of Inspections In the month of January, the following production data was recorded: Refrigerators Stoves Units produced 15,000 25,000 Direct Materials Used $ 75,000 $ 125,000 Direct Labour Cost $ 40,000 $ 72,000 Direct Labour Hours 12,000 15,000 Number of Inspections 300 500 Work in Progress at the start of the month $ 12,500 $ 14,000 Work in Progress at the end of the month. $ 7,500 $ 12,000 Manufacturing Overheads for the month amounted to $ 120,000 and this was allocated equally between the two products, using the traditional approach. You were asked to: a) Prepare a report showing the manufacturing costof each Refrigerator and each Stove. b) Prepare a cost of production report using the ABC approach.
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.
Management was very concerned that their traditional method of costing may no longer be appropriate and wanted to consider using the ABC costing method. It has been suggested that three Cost pools be established, with the following cost Drivers, and the Overhead cost be shared among them as follows:
|
Cost Pool |
Amount |
Cost Driver |
|
|
|
|
|
Assembling |
$ 50,000 |
Labour cost |
|
Manufacturing |
$ 54,000 |
Labour Hours |
|
Inspecting |
$ 16,000 |
Number of Inspections |
|
|
|
|
In the month of January, the following production data was recorded:
|
|
Refrigerators |
Stoves |
|
|
|
|
|
Units produced |
15,000 |
25,000 |
|
Direct Materials Used |
$ 75,000 |
$ 125,000 |
|
Direct Labour Cost |
$ 40,000 |
$ 72,000 |
|
Direct Labour Hours |
12,000 |
15,000 |
|
Number of Inspections |
300 |
500 |
|
Work in Progress at the start of the month |
$ 12,500 |
$ 14,000 |
|
Work in Progress at the end of the month. |
$ 7,500 |
$ 12,000 |
|
|
|
|
Manufacturing Overheads for the month amounted to $ 120,000 and this was allocated equally between the two products, using the traditional approach.
You were asked to:
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