Model A Model B Model C Units of production 1,700 1,200 1,100 Labour hour required 0.3 0.6 0.7 Direct material costs 30 40 50 Expected Activity Activity Cost Pool Overhead Costs Model A Model B Model C Activity 1 $30,000 1,000 600 400 Activity 2 $17,000 1,700 200 100 General Factory $56,000 510 660 230 Total $103,000 Compute the activity rate for each activity. Compute the unit product costs of Model A
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.
A company manufactures a product with three models, each with different direct material costs and labour hour required and monthly production volume as follows:
Labor rate is $10 per hour. The total manufacturing
Required:
-
a) The manufacturing overhead is allocated to the three models based on labor hour. Compute the pre-determined overhead rate and the unit product cost of Model A.
-
b) The company is considering to use the activity-based costing and gathers the following data related to the cost and activities:
|
Model A |
Model B |
Model C |
|
|
Units of production |
1,700 |
1,200 |
1,100 |
|
Labour hour required |
0.3 |
0.6 |
0.7 |
|
Direct material costs |
30 |
40 |
50 |
|
Expected Activity |
||||
|
Activity Cost Pool |
Overhead Costs |
Model A |
Model B |
Model C |
|
Activity 1 |
$30,000 |
1,000 |
600 |
400 |
|
Activity 2 |
$17,000 |
1,700 |
200 |
100 |
|
General Factory |
$56,000 |
510 |
660 |
230 |
|
Total |
$103,000 |
-
Compute the activity rate for each activity.
-
Compute the unit product costs of Model A and Model B.
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