Ppaeng Company produces three products, A, B, and C, all made from the same materials. For the past years, the entity uses traditional costing method to allocate its overhead to its products. The company is now considering the use of activity-based costing in the hope that it will improve its profitability. Information for the three products for the last year is as follows: Product A Product B Product C Units Produce 4,000 5,000 3,200 Selling Price (per unit) Raw Materials Usage (kg) per unit 120 100 180 4 6 3 2 hrs. Direct Labor hours per unit Machine hours per unit Number of Inspections Number of deliveries per retailers 3hrs. 1.5 hrs. 5 7 4 30 45 25 48 30 72 The price of raw materials remained constant throughout the year at P5/kg. Similarly, the direct labor cost was P95/hour. The annual overhead costs were as follows: Activity Area Machine Set Up Quality Control Delivery Cost Costs 45,000 70,000 30,000
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.
The amount of overhead applied to Product C under activity-based costing.
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