Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year: activity expected cost activity drivers activity capacity setting up equipment 126,000 number of setups 150 ordering material 18,000 number of orders 900 machining 126,000 machine hours 10,500 receiving 30,000 receiving hours 1,250 Silven produces two models of cell phones with the following expected activity demands: model x model y units completed 5,000 10000 number of setups 100 50 number of orders 300 600 machine hours 6000 4500 receiving hours 375 875 Required:1. Calculate the global consumption ratios for the two products.2. Using the activity consumption ratios for number of orders and number of setups, show that the same cost assignment can be achieved using these two drivers as that of the complete, four-driver ABC system.
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.
Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year:
| activity | expected cost | activity drivers | activity capacity |
| setting up equipment | 126,000 | number of setups | 150 |
| ordering material | 18,000 | number of orders | 900 |
| machining | 126,000 | machine hours | 10,500 |
| receiving | 30,000 | receiving hours | 1,250 |
Silven produces two models of cell phones with the following expected activity demands:
| model x | model y | |
| units completed | 5,000 | 10000 |
| number of setups | 100 | 50 |
| number of orders | 300 | 600 |
| machine hours | 6000 | 4500 |
| receiving hours | 375 | 875 |
Required:
1. Calculate the global consumption ratios for the two products.
2. Using the activity consumption ratios for number of orders and number of setups, show that the same cost assignment can be achieved using these two drivers as that of the complete, four-driver ABC system.
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