Number of Production Number of Direct Labor Direct Labor Units Runs Moves Hours-Cutting Hours-Finishing Produced Snowboards 430 5,000 4,000 2,000 6,000 Skis 2,000 6,000 70 2,500 4,000 6,000 Total 500 7,500 6,000 12,000
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.
Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory
Indirect labor $507,000
Cutting Department 156,000
Finishing Department192,000 ________
Total $855,000 _______
The activity base associated with the two production departments is direct labor hours.
The indirect labor can be assigned to two different activities as follows:
Activity Budgeted Activity Cost Activity Base
Production control $237,000 Number of production runs
Materials handling 270,000 Number of moves ________
Total $507,000 ________ ________
The activity-base usage quantities and units produced for the two products follow:
Instructions
1. Determine the factory overhead rates under the multiple production department rate
method. Assume that indirect labor is associated with the production departments, so
that the total factory overhead is $315,000 and $540,000 for the Cutting and Finishing
departments, respectively.
2. Determine the total and per-unit
using the multiple production department overhead rates in (1).
3. Determine the activity rates, assuming that the indirect labor is associated with activities
rather than with the production departments.
4. Determine the total and per-unit cost assigned to each product under activity-based
costing.
5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.
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