Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows. Baseball Bats Tennis Rackets Sales revenue $ 1,670,000 $ 975,000 Direct labor 360,000 140,000 Direct materials 552,000 287,000 Required: a. Compute the profit for each product using plantwide allocation. b. Maria, the manager of Department T, was convinced that tennis rackets were really more profitable than baseball bats. She asked her colleague in accounting to break down the overhead costs for the two departments. She discovered that had department rates been used, Department B would have had a rate of 150 percent of direct labor cost and Department T would have had a rate of 300 percent of direct labor cost. Recompute the profits for each product using each department’s allocation rate (based on direct labor cost).
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.
Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows.
| Baseball Bats | Tennis Rackets | |||||
| Sales revenue | $ | 1,670,000 | $ | 975,000 | ||
| Direct labor | 360,000 | 140,000 | ||||
| Direct materials | 552,000 | 287,000 | ||||
Required:
a. Compute the profit for each product using plantwide allocation.
b. Maria, the manager of Department T, was convinced that tennis rackets were really more profitable than baseball bats. She asked her colleague in accounting to break down the overhead costs for the two departments. She discovered that had department rates been used, Department B would have had a rate of 150 percent of direct labor cost and Department T would have had a rate of 300 percent of direct labor cost. Recompute the profits for each product using each department’s allocation rate (based on direct labor cost).
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