Sultan Company uses an activity-based costing system. At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools: Activity Cost Pool Activity Measure Expected Overhead Cost Expected Activity Labor-related Direct labor-hours $ 184,800 30,800 DLHs Purchase orders Number of orders $ 6,900 230 orders Parts management Number of part types $ 81,120 104 part types Board etching Number of boards $ 45,000 1,800 boards General factory Machine-hours $ 150,300 16,700 MHs Required: 1. Compute the activity rate for each of the activity cost pools. 2. The expected activity for the year was distributed among the company’s four products as follows: Activity Cost Pool Expected Activity Product A Product B Product C Product D Labor-related (DLHs) 7,000 14,300 4,400 5,100 Purchase orders (orders) 58 26 46 100 Parts management (part types) 30 18 37 19 Board etching (boards) 500 720 580 0 General factory (MHs) 3,600 6,400 2,100 4,600 Using the ABC data, determine the total amount of overhead cost assigned to each product.
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.
Sultan Company uses an activity-based costing system. At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools:
| Activity Cost Pool | Activity Measure | Expected Overhead Cost | Expected Activity | |
|---|---|---|---|---|
| Labor-related | Direct labor-hours | $ 184,800 | 30,800 | DLHs |
| Purchase orders | Number of orders | $ 6,900 | 230 | orders |
| Parts management | Number of part types | $ 81,120 | 104 | part types |
| Board etching | Number of boards | $ 45,000 | 1,800 | boards |
| General factory | Machine-hours | $ 150,300 | 16,700 | MHs |
Required:
1. Compute the activity rate for each of the activity cost pools.
2. The expected activity for the year was distributed among the company’s four products as follows:
| Activity Cost Pool | Expected Activity | |||
|---|---|---|---|---|
| Product A | Product B | Product C | Product D | |
| Labor-related (DLHs) | 7,000 | 14,300 | 4,400 | 5,100 |
| Purchase orders (orders) | 58 | 26 | 46 | 100 |
| Parts management (part types) | 30 | 18 | 37 | 19 |
| Board etching (boards) | 500 | 720 | 580 | 0 |
| General factory (MHs) | 3,600 | 6,400 | 2,100 | 4,600 |
Using the ABC data, determine the total amount of overhead cost assigned to each product.
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