Muffin Factory (MF) bakes and sells muffins. MF buys materials from suppliers and bakes, frosts, and packages them for resale. Currently the firm offers 2 different types of muffins to gourmet bake shops in boxes, each containing a dozen muffins. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the baking, frosting, and packing process. MF prices its muffins at full product cost, including allocated overhead, plus a markup of 40%. Data for the current budget include factory overhead of $919,400, which has been allocated by its current costing system on the basis of each product’s direct labor cost. The budgeted direct labor cost for the current year totals $300,000. The budgeted direct costs for a one-dozen box of two of the company’s most popular muffins are as follows: Costs per one dozen Blueberry Cinnamon Activity Cost Driver Budgeted Activity Budgeted Cost Direct materials $ 3.20 $ 2.30 Baking Baking hours 9,000 $384,000 Direct labor $1.8 $1.5 Frosting Frosting hours 4,500 $326,000 Packaging Packaging hours 450 $209,400 Budgeted direct labor cost $300,000 Total factory overhead cost $919,400 Activity Blueberry Cinnamon Budgeted sales (dozen) 100,000 80,000 Baking time (hrs per 100 dozen) 5 4.5 Packaging time (hrs per 100 dozen) .25 0.25 Mark-up % 40% Frosting time (hrs per 100 dozen) 3 2.5 Find: 1. Using MF’s current product costing system, (a.) Determine the company’s predetermined overhead rate using direct labor cost as the single cost driver. (b.) Determine the full product costs and selling prices of one dozen Blueberry muffins and one dozen Cinnamon muffins. 2. Using an activity-based costing approach, develop a new product cost for one dozen Blueberry muffins and one dozen Cinnamon muffins. Allocate all overhead costs to the 100,000 dozen Blueberry and the 80,000 dozen Cinnamon muffins.
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.
Muffin Factory (MF) bakes and sells muffins. MF buys materials from suppliers and bakes, frosts, and packages them for resale. Currently the firm offers 2 different types of muffins to gourmet bake shops in boxes, each containing a dozen muffins. The major cost is direct materials; however, a substantial amount of factory
MF prices its muffins at full product cost, including allocated overhead, plus a markup of 40%.
Data for the current budget include factory overhead of $919,400, which has been allocated by its current costing system on the basis of each product’s direct labor cost. The budgeted direct labor cost for the current year totals $300,000.
The budgeted direct costs for a one-dozen box of two of the company’s most popular muffins are as follows:
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Costs per one dozen |
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Blueberry |
Cinnamon |
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Activity |
Cost Driver |
Budgeted Activity |
Budgeted Cost |
|
Direct materials |
$ 3.20 |
$ 2.30 |
Baking |
Baking hours |
9,000 |
$384,000 |
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Direct labor |
$1.8 |
$1.5 |
Frosting |
Frosting hours |
4,500 |
$326,000 |
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Packaging |
Packaging hours |
450 |
$209,400 |
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Budgeted direct labor cost |
$300,000 |
Total |
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$919,400 |
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Activity |
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Blueberry |
Cinnamon |
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Budgeted sales (dozen) |
100,000 |
80,000 |
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Baking time (hrs per 100 dozen) |
5 |
4.5 |
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Packaging time (hrs per 100 dozen) |
.25 |
0.25 |
Mark-up % |
40% |
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Frosting time (hrs per 100 dozen) |
3 |
2.5 |
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Find:
1. Using MF’s current product costing system,
(a.) Determine the company’s predetermined overhead rate using direct labor cost as the single cost driver.
(b.) Determine the full product costs and selling prices of one dozen Blueberry muffins and one dozen Cinnamon muffins.
2. Using an activity-based costing approach, develop a new product cost for one dozen Blueberry muffins and one dozen Cinnamon muffins. Allocate all overhead costs to the 100,000 dozen Blueberry and the 80,000 dozen Cinnamon muffins.
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