Ansol ltd make two products A and B. in their factory using the same equipment. Product B is high volume product whilst product A is produced in low volumes. Details of cost activities, inputs and output are as follows: Overhead cost analysis Material handling 250 000 Material procurement 100 000 Machine set-up 200 000 Quality control 300 000 Production 650 000 1 500 000 Cost driver analysis Overhead cost driver product A product b total Material handling material movement 150 30 180 Materials procurement number of orders 240 80 320 Machine set ups number of setups 70 30 100 Quality control number of inspections 150 100 250 Production direct labour hrs 40 000 10 000 50 000 Annual output product A: 80 000 Product B: 20 000
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.
Ansol ltd make two products A and B. in their factory using the same equipment. Product B is high volume product whilst product A is produced in low volumes. Details of cost activities, inputs and output are as follows:
Overhead cost analysis
Material handling 250 000
Material procurement 100 000
Machine set-up 200 000
Quality control 300 000
Production 650 000
1 500 000
Cost driver analysis
Overhead cost driver product A product b total
Material handling material movement 150 30 180
Materials procurement number of orders 240 80 320
Machine set ups number of setups 70 30 100
Quality control number of inspections 150 100 250
Production direct labour hrs 40 000 10 000 50 000
Annual output product A: 80 000
Product B: 20 000
Required
- Calculate the overhead cost per product using
i.)the absorption costing system
ii.)the activity based costing
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