Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows: Activity Activity-Base Usage (hrs. per unit) x Activity Rate per Hour = Activity Cost Fabrication 0.75 $24.00 $18.00 Assembly 1.50 20.00 30.00 Inspection 0.30 25.00 7.50 Moving 0.25 12.00 3.00 Total activity cost per unit $58.50 These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit. a. Determine the revised activity-based cost per unit under the new fabrication plan. b. Does this plan reduce the activity cost per unit of the oven? Please show your work.
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.
Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows:
| Activity |
Activity-Base |
x | Activity Rate per Hour |
= |
Activity Cost |
| Fabrication | 0.75 | $24.00 | $18.00 | ||
| Assembly | 1.50 | 20.00 | 30.00 | ||
| Inspection | 0.30 | 25.00 | 7.50 | ||
| Moving | 0.25 | 12.00 | 3.00 | ||
| Total activity cost per unit | $58.50 |
These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit.
a. Determine the revised activity-based cost per unit under the new fabrication plan.
b. Does this plan reduce the activity cost per unit of the oven?
Please show your work.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
