In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company’s only two products is shown below: Product A Product B Total Direct materials $ 436,300 $ 251,700 $ 688,000 Direct labor $ 200,000 $ 104,000 304,000 Manufacturing overhead 608,000 Cost of goods sold $ 1,600,000 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity Product A Product B Total Machining (machine-hours) $ 213,500 90,000 62,500 152,500 Setups (setup hours) 157,500 75 300
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.
In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company’s only two products is shown below:
| Product A | Product B | Total | |
|---|---|---|---|
| Direct materials | $ 436,300 | $ 251,700 | $ 688,000 |
| Direct labor | $ 200,000 | $ 104,000 | 304,000 |
| Manufacturing |
608,000 | ||
| Cost of goods sold | $ 1,600,000 |
The company created an activity-based costing system that allocated its
| Activity Cost Pool (and Activity Measure) | Manufacturing Overhead | Activity | ||
|---|---|---|---|---|
| Product A | Product B | Total | ||
| Machining (machine-hours) | $ 213,500 | 90,000 | 62,500 | 152,500 |
| Setups (setup hours) | 157,500 | 75 | 300 | 375 |
| Product design (number of products) | 120,000 | 1 | 1 | 2 |
| Other (organization-sustaining costs) | 117,000 | NA | NA | NA |
| Total manufacturing overhead cost | $ 608,000 |
The company’s ABC implementation team also concluded that $34,500 and $115,500 of the company’s advertising expenses could be directly traced to Product A and Product B, respectively. The remainder of its selling and administrative expenses ($400,000) was organization-sustaining in nature.
The company’s activity-based costing system would report a product margin for Product A of:
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