Part 3: Activity-Based Costing Mr. Suncat has a couple of questions for you regarding the activity-based costing method. He has provided the following additional information: Using activity-based costing, compute the product cost for each Show all calculations and clearly label your answer. Basic Wedding Cake Multi-layer Wedding Cake Custom Wedding Cake Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Driver: Basic Wedding Cake Expected Use of Cost Driver Multi-Layer Wedding Cake Expected Use of Cost Driver Custom Wedding Cake Initial customer meeting Number of hours spent with customer $15,000 4.5 hours 0.75 hour 1.25 hours 2.5 hours Purchasing ingredients Number of purchase requisitions $15,000 1000 requisitions 150 requisitions 300 requisitions 550 requisitions Making and baking the wedding cakes Direct Labor hours $40,000 5.5 hours 1.25 hour 2 hours 2.25 hours Decorating the wedding cakes Direct Labor hours $70,000 9.5 hours 1.75 hours 3 hours 4.75 hours Final customer meeting and cake delivery Number of wedding cakes $10,000 4200 1500 cakes 1700 cakes 1000 cakes
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.
Part 3: Activity-Based Costing
Mr. Suncat has a couple of questions for you regarding the activity-based costing method. He has provided the following additional information:
- Using activity-based costing, compute the product cost for each Show all calculations and clearly label your answer.
- Basic Wedding Cake
- Multi-layer Wedding Cake
- Custom Wedding Cake
|
Cost Pools |
Cost Drivers |
Estimated Overhead |
Expected Use of Cost Drivers |
Expected Use of Cost Driver: Basic Wedding Cake |
Expected Use of Cost Driver Multi-Layer Wedding Cake |
Expected Use of Cost Driver Custom Wedding Cake |
|
Initial customer meeting |
Number of hours spent with customer |
$15,000 |
4.5 hours |
0.75 hour |
1.25 hours |
2.5 hours |
|
Purchasing ingredients |
Number of purchase requisitions |
$15,000 |
1000 requisitions |
150 requisitions |
300 requisitions |
550 requisitions |
|
Making and baking the wedding cakes |
Direct Labor hours |
$40,000 |
5.5 hours |
1.25 hour |
2 hours |
2.25 hours |
|
Decorating the wedding cakes |
Direct Labor hours |
$70,000 |
9.5 hours |
1.75 hours |
3 hours |
4.75 hours |
|
Final customer meeting and cake delivery |
Number of wedding cakes |
$10,000 |
4200 |
1500 cakes |
1700 cakes |
1000 cakes |
Manufacturing overhead: It is the indirect cost incurred as a part of manufacturing the products. These costs are not directly related to the units manufactured. So they are allocated to the manufactured units based on estimated cost drivers.
Activity based costing system: It is precise method of allocation of overhead to the products. Under this method the overhead costs are assigned to the activities concerned and then they are allocated to cost objects which use such activities.
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