1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line. Overhead costs 1.689.340 $ 7,670 220.25 per machine hour Machine hours 2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $260 for Model 145 and $180 for Model 212. Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit 2,270 5,400 2,000 4,000 Model 145 Model 212 Model 145 Model 212 3. If the market price for Model 145 is $759 and the market price for Model 212 is $490, determine the profit or loss per unit for each model.
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.
Exercise 04-8 Using the plantwide overhead rate to assess prices LO P1
Way Cool produces two different models of air conditioners. The company produces the mechanical systems in its components department. The mechanical systems are combined with the housing assembly in its finishing department. The activities, costs, and drivers associated with these two manufacturing processes and the production support process follow. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and round "Cost per unit and OH rate" answers to 2 decimal places.)
| Process | Activity | Overhead Cost | Driver | Quantity | ||||
| Components | Changeover | $ | 458,500 | Number of batches | 750 | |||
| Machining | 300,400 | Machine hours | 7,670 | |||||
| Setups | 228,000 | Number of setups | 20 | |||||
| $ | 986,900 | |||||||
| Finishing | Welding | $ | 181,600 | Welding hours | 4,100 | |||
| Inspecting | 233,000 | Number of inspections | 760 | |||||
| Rework | 60,500 | Rework orders | 160 | |||||
| $ | 475,100 | |||||||
| Support | Purchasing | $ | 136,000 | Purchase orders | 570 | |||
| Providing space | 31,000 | Number of units | 6,000 | |||||
| Providing utilities | 60,340 | Number of units | 6,000 | |||||
| $ | 227,340 | |||||||
Additional production information concerning its two product lines follows.
| Model 145 | Model 212 | |||||
| Units produced | 2,000 | 4,000 | ||||
| Welding hours | 1,600 | 2,500 | ||||
| Batches | 375 | 375 | ||||
| Number of inspections | 500 | 260 | ||||
| Machine hours | 2,270 | 5,400 | ||||
| Setups | 10 | 10 | ||||
| Rework orders | 70 | 90 | ||||
| Purchase orders | 380 | 190 | ||||
In case of a plant wide overhead rate method, the overhead rate is calculated by dividing the total overhead costs involved in production with the allocation base such as the total direct labor hours required to produce products.
This rate is then used to calculate the overhead costs involved in producing a particular product by multiplying this overhead rate with the total direct labor hours required to produce that particular product.
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