Multiple Cost DriversScottsdale Ltd. manufactures a variety of high-volume and low-volume products to customer demand. Presented is information on 2009 manufacturing overhead and activity cost drivers. Level Total Cost Units of Cost Driver Unit $500,000 20,000 machine hours Batch 200,000 1,000 customer orders Product 200,000 50 products Product X1 required 2,000 machine hours to fill 10 customer orders for a total of 8,000 units.(a) Assuming all manufacturing overhead is estimated and predicted on the basis of machine hours, determine the predicted total overhead costs to produce the 8,000 units of product X1.(b) Assuming manufacturing overhead is estimated and predicted using separate rates for machine hours, customer orders, and products (a multiple-level cost hierarchy), determine the predicted total overhead costs to produce the 8,000 units of product X1. (c) Calculate the error in predicting manufacturing overhead using machine hours versus using multiple cost drivers. Indicate whether the use of only machine hours results in overpredicting or underpredicting the costs to produce 8,000 units of product X1. (d) Determine the error in the prediction of X1 batch-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the batch-level costs of product X1. AnswerOver-predictionUnder-prediction (e) Determine the error in the prediction of X1 product-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the product-level costs of product X1.
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.
Multiple Cost Drivers
Scottsdale Ltd. manufactures a variety of high-volume and low-volume products to customer demand. Presented is information on 2009 manufacturing overhead and activity cost drivers.
| Level | Total Cost | Units of Cost Driver |
|---|---|---|
| Unit | $500,000 | 20,000 machine hours |
| Batch | 200,000 | 1,000 customer orders |
| Product | 200,000 | 50 products |
Product X1 required 2,000 machine hours to fill 10 customer orders for a total of 8,000 units.
(a) Assuming all manufacturing overhead is estimated and predicted on the basis of machine hours, determine the predicted total overhead costs to produce the 8,000 units of product X1.
(b) Assuming manufacturing overhead is estimated and predicted using separate rates for machine hours, customer orders, and products (a multiple-level cost hierarchy), determine the predicted total overhead costs to produce the 8,000 units of product X1.
(c) Calculate the error in predicting manufacturing overhead using machine hours versus using multiple cost drivers. Indicate whether the use of only machine hours results in overpredicting or underpredicting the costs to produce 8,000 units of product X1.
(d) Determine the error in the prediction of X1 batch-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the batch-level costs of product X1.
AnswerOver-predictionUnder-prediction
(e) Determine the error in the prediction of X1 product-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the product-level costs of product X1.
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