Shine Ltd manufactures two products, Exe and Zed. Currently, overheads are apportioned using a traditional absorption costing basis. You are the cost accountant and from the class discussion on activity based costing (ABC), you are considering its implementation in your company for the purposes of charging overheads to production. The following information has been provided: Type of cost Amount Current basis Volume related costs Sh. 600,000 Machine hours Purchasing related cost Sh.420,000 Labour hours Set-up costs Sh. 360,000 Labour hours Extracts from the standard costs show the following: EXE ZED Labour hours per unit 4 2 Machine hours per unit 2 2 Budgeted production next year 20,000 10,000 Number of purchase orders per annum 150 60 Number of machine set-up per annum 70 50 Required: Using ABC system, what is the overhead per unit for product Zed?
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.
Shine Ltd manufactures two products, Exe and Zed. Currently,
The following information has been provided:
|
Type of cost |
Amount |
Current basis |
|
Volume related costs |
Sh. 600,000 |
Machine hours |
|
Purchasing related cost |
Sh.420,000 |
Labour hours |
|
Set-up costs |
Sh. 360,000 |
Labour hours |
Extracts from the
|
|
EXE |
ZED |
|
Labour hours per unit |
4 |
2 |
|
Machine hours per unit |
2 |
2 |
|
Budgeted production next year |
20,000 |
10,000 |
|
Number of purchase orders per annum |
150 |
60 |
|
Number of machine set-up per annum |
70 |
50 |
|
|
|
|
Required:
Using ABC system, what is the overhead per unit for product Zed?
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