Estimated Estimated Cost Drivers Activity Cost Overhead Street Mountain Pools Costs Tires Tires Machine set ups $ 90,000 150 350 Assembling $500,000 25,000 15,000 Inspection $400,000 180 320 Question Using the activity-based costing approach, determine the applied overhead rates for Darter Company.
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.
|
|
Estimated |
Estimated Cost Drivers |
|
|
Activity Cost |
Overhead |
Street |
Mountain |
|
Pools |
Costs |
Tires |
Tires |
|
Machine set ups |
$ 90,000 |
150 |
350 |
|
Assembling |
$500,000 |
25,000 |
15,000 |
|
Inspection |
$400,000 |
180 |
320 |
Question
Using the activity-based costing approach, determine the applied overhead rates for Darter Company.
Activity based costing: It is a method for allocating overhead cost to products based on consumption of activity in production. Overhead rate for allocating cost is computed by dividing activity cost with respective cost driver. Overhead cost is allocated to product by multiplying overhead rate with number of activities consumed for production.
Compute applied overhead rates for Darter company as shown below:
Calculation formulas:
Compute applied overhead cost for Street tires as shown below:
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