Pure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Activity Costs Production $247,500 Setup 48,000 Inspection 12,500 Shipping 69,300 Customer service 27,600 Total $404,900 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Inspection Number of inspections Shipping Number of customer orders Customer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Machine Hours Number of Setups Number of Inspections Number of Customer Orders Number of Customer Service Requests Units White sugar 2,000 50 100 410 25 8,000 Brown sugar 1,250 70 160 1,100 200 5,000 Powdered sugar 1,250 80 240 800 120 5,000 Total 4,500 200 500 2,310 345 18,000 Each product requires 0.25 machine hour per unit. Required: 1. Determine the activity rate for each activity. 2. Determine the total and per-unit activity costs for all three products.
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.
Pure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:
Activity
Activity Costs
Production
$247,500
Setup
48,000
Inspection
12,500
Shipping
69,300
Customer service
27,600
Total
$404,900
The activity bases identified for each activity are as follows:
Activity
Activity Base
Production
Machine hours
Setup
Number of setups
Inspection
Number of inspections
Shipping
Number of customer orders
Customer service
Number of customer service requests
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
Machine
Hours
Number of
Setups
Number of
Inspections
Number of
Customer
Orders
Number of
Customer
Service
Requests
Units
White sugar
2,000
50
100
410
25
8,000
Brown sugar
1,250
70
160
1,100
200
5,000
Powdered sugar
1,250
80
240
800
120
5,000
Total
4,500
200
500
2,310
345
18,000
Each product requires 0.25 machine hour per unit.
Required:
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places.
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