STAGE ONE Service Departments Factory Custodial Machinery Repair Department Services Department Manufacturing-Overhead Distribution (General manufacturing-overhead Overhead costs are assigned to production departments. Service Department Cost Allocation (Service department costs are allocated to the production departments.) costs are distributed to all departments.) Production Departments Machining Department Assembly Department STAGE TWO Overhead Application (All costs accumulated in the production departments are applied to products.)* Overhead costs are assigned to production jobs. Production jobs pass through production departments. * The Machining Department manufactures bicycle components, such as the bicycle frame pictured. In the Assembly Department, the components are put together. The Machining Department and the Assembly Department each has its own predetermined overhead rate. Exhibit 3–12 Developing Departmental
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.
Refer to Exhibit 3–12, which portrays the three types of allocation procedures used in two-stage allocation. Give an example of each of these allocation procedures in a hospital setting. The ultimate cost object is a patient-day of hospital care. This is one day of care for one patient. (Hint: First think about the various departments in a hospital. Which departments deal directly with patients; which ones are service departments and do not deal directly with patients? What kinds of costs does a hospital incur that should be distributed among all of the hospital’s departments? Correct hospital terminology is not important here. Focus on the concepts of cost allocation portrayed in Exhibit 3–12.)
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