Basic Model Deluxe Model 40,000 Expected quantity Selling price 20,000 $180 $360 Prime costs $80 $160 Machine hours 5,000 5,000 Direct labor hours 10,000 10,000 Engineering support (hours) Receiving (orders processed) Materials handling (number of moves) Purchasing (number of requisitions) Maintenance (hours used) 1,500 4,500 250 500 1,200 4,800 100 200 1,000 3,000 Paying suppliers (invoices processed) tting up equipment (number of setups) 250 500 16 64 Additionally, the following overhead activity costs are reported: $114,000 Maintaining equipment Engineering support Materials handling Setting up equipment Purchasing materials Receiving goods Paying suppliers Providing space Total "Recciving activity cost includes allocated share of forklift operators' salaries. 120,000 96,000 60,000 40,000 30,000 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.
Production-Based Costing versus Activity-Based Costing,
Assigning Costs to Activities, Resource Drivers
Willow Company produces lawnmowers. One of its plants produces two versions of mowers:
a basic model and a deluxe model. The deluxe model has a sturdier frame, a higher horsepower
engine, a wider blade, and mulching capability. At the beginning of the year, the following data
were prepared for this plant:
Facility-level costs are allocated in proportion to machine hours (provides a measure of
time the facility is used by each product). Receiving and materials handling use three inputs:
two forklifts, gasoline to operate the forklift, and three operators. The three operators are paid a
salary of $40,000 each. The operators spend 25% of their time on the receiving activity and 75%
on moving goods (materials handling). Gasoline costs $3 per move. Depreciation amounts to
$8,000 per forklift per year.
Required:
(Note: Round answers to two decimal places.)
1. Calculate the cost of the materials handling activity. Label the cost assignments as driver
tracing or direct tracing. Identify the resource drivers.
2. Calculate the cost per unit for each product by using direct labor hours to assign all
3. Calculate activity rates, and assign costs to each product. Calculate a unit cost for each
product, and compare these costs with those calculated in Requirement 2.
4. Calculate consumption ratios for each activity.
5. CONCEPTUAL CONNECTION Explain how the consumption ratios calculated in
Requirement 4 can be used to reduce the number of rates. Calculate the rates that would
apply under this approach.
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