Toms Music Ltd. is considering changing its costing approach away from a traditional absorption costing one based on expected units required to an Activity-Based Costing one. It has overheads of $156,000 which are related to taking material deliveries. The delivery information about each product is given as follows: Product Disc Tape Vinyl Total units required (# units) 1,000 2,000 3,000 Delivery size (# units) 200 400 1,000 Total labour costs are $36,000 for 45,000 hours. Each unit of each product takes the same number of direct hours. Assuming that the company uses the number of deliveries as its cost driver, what is the increase or decrease in unit costs for Vinyl arising from the change from the traditional absorption costing approach to ABC? $14.00 decrease $14.00 increase $0.50 decrease $0.50 increase
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.
Toms Music Ltd. is considering changing its costing approach away from a traditional absorption costing one based on expected units required to an Activity-Based Costing one. It has
The delivery information about each product is given as follows:
|
Product |
Disc |
Tape |
Vinyl |
|
Total units required (# units) |
1,000 |
2,000 |
3,000 |
|
Delivery size (# units) |
200 |
400 |
1,000 |
Total labour costs are $36,000 for 45,000 hours. Each unit of each product takes the same number of direct hours.
Assuming that the company uses the number of deliveries as its cost driver, what is the increase or decrease in unit costs for Vinyl arising from the change from the traditional absorption costing approach to ABC?
- $14.00 decrease
- $14.00 increase
- $0.50 decrease
- $0.50 increase
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