Had the company used labor hours as a companywide allocation base, how much overhead would it have allocated to the cutting shears? How much overhead is allocated to the cutting shears using activity-based costing? Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 810 units are produced. If direct product costs are $120 and the product is priced at 35 percent above cost for what price would the product sell under each allocation system?
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.
Baird Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. The costs and cost drivers associated with the four overhead activity cost pools follow:
Production of 810 sets of cutting shears, one of the company’s 20 products, took 270 labor hours and 9 setups and consumed 20 percent of the product-sustaining activities.
Required
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Had the company used labor hours as a companywide allocation base, how much overhead would it have allocated to the cutting shears?
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How much overhead is allocated to the cutting shears using activity-based costing?
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Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 810 units are produced. If direct product costs are $120 and the product is priced at 35 percent above cost for what price would the product sell under each allocation system?
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