Pure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Activity Costs Production $247,500 Setup 48,000 Inspection 12,500 Shipping 69,300 Customer service 27,600 Total $404,900 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Inspection Number of inspections Shipping Number of customer orders Customer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Machine Hours Number of Setups Number of Inspections Number of Customer Orders Number of Customer Service Requests Units White sugar 2,000 50 100 410 25 8,000 Brown sugar 1,250 70 160 1,100 200 5,000 Powdered sugar 1,250 80 240 800 120 5,000 Total 4,500 200 500 2,310 345 18,000 Each product requires 0.25 machine hour per unit. Required: 1. Determine the activity rate for each activity. Activity Rate Production $fill in the blank 1 /mh Setup $fill in the blank 2 /setup Inspection $fill in the blank 3 /insp. Shipping $fill in the blank 4 /cust. ord. Customer Service $fill in the blank 5 /req. 2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places. White Sugar Brown Sugar Powdered Sugar Total activity cost $fill in the blank 6 $fill in the blank 7 $fill in the blank 8 Activity cost per unit $fill in the blank 9 $fill in the blank 10 $fill in the blank 11
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.
Activity-Based Costing
Pure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:
| Activity | Activity Costs | ||
| Production | $247,500 | ||
| Setup | 48,000 | ||
| Inspection | 12,500 | ||
| Shipping | 69,300 | ||
| Customer service | 27,600 | ||
| Total | $404,900 |
The activity bases identified for each activity are as follows:
| Activity | Activity Base | |
| Production | Machine hours | |
| Setup | Number of setups | |
| Inspection | Number of inspections | |
| Shipping | Number of customer orders | |
| Customer service | Number of customer service requests |
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
| Machine Hours |
Number of Setups |
Number of Inspections |
Number of Customer Orders |
Number of Customer Service Requests |
Units | |||||||
| White sugar | 2,000 | 50 | 100 | 410 | 25 | 8,000 | ||||||
| Brown sugar | 1,250 | 70 | 160 | 1,100 | 200 | 5,000 | ||||||
| Powdered sugar | 1,250 | 80 | 240 | 800 | 120 | 5,000 | ||||||
| Total | 4,500 | 200 | 500 | 2,310 | 345 | 18,000 |
Each product requires 0.25 machine hour per unit.
Required:
1. Determine the activity rate for each activity.
| Activity Rate | |
| Production | $fill in the blank 1 /mh |
| Setup | $fill in the blank 2 /setup |
| Inspection | $fill in the blank 3 /insp. |
| Shipping | $fill in the blank 4 /cust. ord. |
| Customer Service | $fill in the blank 5 /req. |
2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places.
| White Sugar | Brown Sugar | Powdered Sugar | |
| Total activity cost | $fill in the blank 6 | $fill in the blank 7 | $fill in the blank 8 |
| Activity cost per unit | $fill in the blank 9 | $fill in the blank 10 | $fill in the blank 11 |
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