1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. (Round to two decimal places.) Plantwide rate: $ per DLH. Model A: $ overhead cost per unit. Model B: $ overhead cost per unit. 2. Compute the overhead cost per unit for each product by using ABC. (Round rates and unit overhead costs to two decimal places.) Model A: $ overhead cost per unit. Model B: $ overhead cost per unit.
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.
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Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing
Ramsey Company produces speakers (Model A and Model B). Both products pass through two producing departments. Model A's production is much more labor-intensive than that of Model B. Model B is also the more popular of the two speakers. The following data has been gathered for the two products:
Product Data Model A Model B Units produced per year 10,000 100,000 Prime costs $150,000 $1,500,000 Direct labor hours 140,000 300,000 Machine hours 20,000 200,000 Production runs 40 60 Inspection hours 800 1,200 Maintenance hours 10,000 90,000 Overhead costs:Setup costs $270,000 Inspection costs 210,000 Machining 240,000 Maintenance 270,000 Total $990,000
Required:1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. (Round to two decimal places.)
Plantwide rate: $ per DLH.
Model A: $ overhead cost per unit. Model B: $ overhead cost per unit. 2. Compute the overhead cost per unit for each product by using ABC. (Round rates and unit overhead costs to two decimal places.)
Model A: $ overhead cost per unit. Model B: $ overhead cost per unit. Note: Be sure to complete both tables below.
Activity Driver Activity Rate Setups $ per Inspections $ per Machining $ per Maintenance $ per
Overhead assignment Model A Model B Setups $ $ Inspections Machining Maintenance Total overhead $ $ ÷ Units produced Overhead per unit $ $ 3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1: (machine intensive) with a rate of $3.50 per machine hour and Department 2: (labor intensive) with a rate of $0.90 per direct labor hour. The consumption of these two drivers is as follows:
Department 1
Machine HoursDepartment 2
Direct Labor HoursModel A 10,000 130,000 Model B 170,000 270,000 Compute the overhead cost per unit for each product by using departmental rates. (Round to two decimal places.)
Model A: $ per unit Model B: $ per unit 4. CONCEPTUAL CONNECTION Using the activity-based product costs as the standard, comment on the ability of departmental rates to improve the accuracy of product costing. Did the departmental rates do better than the plantwide rate?
A common justification is to use hours for machine-intensive departments and hours for labor-intensive departments. Using activity-based costs as the standard, we can say that departmental rates the accuracy of the overhead cost assignment for both products. The departmental rates cost A well the ABC method while the plantwide rate costs A well the ABC method. However, the rates of difference are very close. Looking at it this way, department costs are not clearly more wrong than the plantwide rate; they are wrong in a direction. The departmental rates do better than the plantwide rates.
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