Sunshine Company sells custom made surf boards in California. The finance manager has supplied the following data from its activity-based costing system: Overhead Costs Staff Salaries $500,000 Selling and administration overheads 200,000 Total Overhead Costs $700,000 Activity Cost Pool Activity Measure Total Activity for the Year Product design Number of new designs 500 new designs Order Processing Number of Customer orders 700 orders Customer Support Number of Customers 400 customers Others Organization sustaining activity Not applicable Distribution of Resource Consumption across Activities Product Design Order Processing Customer Support Other Total Staff Salaries 40% 30% 20% 10% 100% Selling and administration overheads 30% 10% 20% 40% 100% During the year Sunshine Company completed three individual orders for a new customer, Tarpaper Inc. Two different designs of surfboards were prepared for and sold to this new customer – Orange Tangerine and Blue Waves. Data concerning the two designs and customer orders are as follows: Orange Tangerine Blue Waves Selling price $700 per unit $500 per unit Direct materials $280 per unit $180 per unit Direct labor $100 per unit $50 per unit Order 1 10 units of Orange Tangerine Order 2 20 units of Blue Waves Order 3 15 units of Orange Tangerines and 15 units of Blue Waves Required: Prepare a report showing the first-stage allocation of overhead costs to the respective activity cost pools. Calculate the activity rates for the activity cost pools. Prepare a report showing the overhead costs for the orders from Tarpaper Inc. including customer support costs. Prepare a report showing the customer margin for Tarpaper Inc.
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.
Sunshine Company sells custom made surf boards in California. The finance manager has supplied the following data from its activity-based costing system:
|
Overhead Costs |
|
|
Staff Salaries |
$500,000 |
|
Selling and administration |
200,000 |
|
Total Overhead Costs |
$700,000 |
|
|
|
|
Activity Cost Pool |
Activity Measure |
Total Activity for the Year |
|
Product design |
Number of new designs |
500 new designs |
|
Order Processing |
Number of Customer orders |
700 orders |
|
Customer Support |
Number of Customers |
400 customers |
|
Others |
Organization sustaining activity |
Not applicable |
Distribution of Resource Consumption across Activities
|
|
Product Design |
Order Processing |
Customer Support |
Other |
Total |
|
Staff Salaries |
40% |
30% |
20% |
10% |
100% |
|
Selling and administration overheads |
30% |
10% |
20% |
40% |
100% |
During the year Sunshine Company completed three individual orders for a new customer, Tarpaper Inc. Two different designs of surfboards were prepared for and sold to this new customer – Orange Tangerine and Blue Waves. Data concerning the two designs and customer orders are as follows:
|
|
Orange Tangerine |
Blue Waves |
|
Selling price |
$700 per unit |
$500 per unit |
|
Direct materials |
$280 per unit |
$180 per unit |
|
Direct labor |
$100 per unit |
$50 per unit |
|
Order 1 |
10 units of Orange Tangerine |
|
Order 2 |
20 units of Blue Waves |
|
Order 3 |
15 units of Orange Tangerines and 15 units of Blue Waves |
Required:
- Prepare a report showing the first-stage allocation of overhead costs to the respective activity cost pools.
- Calculate the activity rates for the activity cost pools.
- Prepare a report showing the overhead costs for the orders from Tarpaper Inc. including customer support costs.
- Prepare a report showing the customer margin for Tarpaper Inc.
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