Puget World, Incorporated, manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow: Direct Labor- Hours per Unit Annual Production Total Direct Labor-Hours Model N 800 XL 3.0 3,000 units 9,000 Model N 500 1.4 15,000 units 21,000 30,000 Additional information about the company follows: a. Model N 800 XL requires $90 in direct materials per unit, and Model N 500 requires $45. b. The direct labor wage rate is $15 per hour. c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows: Activity Cost Pool Activity Measure Estimated Overhead Cost Machine setups Number of setups $ 480,000 Special processing Machine-hours 225,000 General factory Direct labor-hours 1,815,000 $ 2,520,000 Activity Measure Expected Activity Model N 800 XL Model N 500 Total Number of setups 160 240 400 Machine-hours 15,000 0 15,000 Direct labor-hours 9,000 21,000 30,000 2. Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products. a(1). Compute the activity rate for each activity cost pool. a(2). Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system. b. Compute the unit product cost of each model.
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.
Puget World, Incorporated, manufactures two models of television sets, the N 800 XL model and the N 500 model. Data regarding the two products follow:
| Direct Labor- Hours per Unit | Annual Production | Total Direct Labor-Hours | ||
|---|---|---|---|---|
| Model N 800 XL | 3.0 | 3,000 | units | 9,000 |
| Model N 500 | 1.4 | 15,000 | units | 21,000 |
| 30,000 |
Additional information about the company follows:
a. Model N 800 XL requires $90 in direct materials per unit, and Model N 500 requires $45.
b. The direct labor wage rate is $15 per hour.
c. The company has always used direct labor-hours as the base for applying
d. Model N 800 XL is more complex to manufacture than Model N 500 and requires the use of special equipment. Consequently, the company is considering the use of activity-based costing to assign manufacturing overhead cost to products. Three activity cost pools have been identified as follows:
| Activity Cost Pool | Activity Measure | Estimated Overhead Cost |
|---|---|---|
| Machine setups | Number of setups | $ 480,000 |
| Special processing | Machine-hours | 225,000 |
| General factory | Direct labor-hours | 1,815,000 |
| $ 2,520,000 |
| Activity Measure | Expected Activity | ||
|---|---|---|---|
| Model N 800 XL | Model N 500 | Total | |
| Number of setups | 160 | 240 | 400 |
| Machine-hours | 15,000 | 0 | 15,000 |
| Direct labor-hours | 9,000 | 21,000 | 30,000 |
2. Assume that the company decides to use activity-based costing to assign manufacturing overhead cost to products.
a(1). Compute the activity rate for each activity cost pool.
a(2). Determine the amount of overhead cost that would be assigned to each model using the activity-based costing system.
b. Compute the unit product cost of each model.
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