3. The job costing system at Smith's Custom Chairs has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 15 intricate personalized chairs, and Job 325, an order of 6 standard personalized chairs. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly-designed activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows: Purchasing Material handling Machine maintenance Product inspection Packaging Total Number of purchase orders Number of materials moves Budgeted overhead RM70,000 Machine-hours Number of inspections Units produced RM 87,500 RM 237,300 RM18,900 RM39,900 RM453,600 Activity driver budgeted Purchase orders processed Material moves Machine-hours Inspections Units produced Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 25 10 40 9 15 Job 325 8 4 Quantity of activity driver 2,000 5,000 10,500 60 3 6 1,200 3,800 a. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. b. Compute the total overhead allocated to each job under an ABC system using the appropriate activity drivers. c. Explain why Smith's Custom Chairs might favor the ABC system over the simple job costing system, especially in its bidding process.
3. The job costing system at Smith's Custom Chairs has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 15 intricate personalized chairs, and Job 325, an order of 6 standard personalized chairs. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly-designed activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows: Purchasing Material handling Machine maintenance Product inspection Packaging Total Number of purchase orders Number of materials moves Budgeted overhead RM70,000 Machine-hours Number of inspections Units produced RM 87,500 RM 237,300 RM18,900 RM39,900 RM453,600 Activity driver budgeted Purchase orders processed Material moves Machine-hours Inspections Units produced Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 25 10 40 9 15 Job 325 8 4 Quantity of activity driver 2,000 5,000 10,500 60 3 6 1,200 3,800 a. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. b. Compute the total overhead allocated to each job under an ABC system using the appropriate activity drivers. c. Explain why Smith's Custom Chairs might favor the ABC system over the simple job costing system, especially in its bidding process.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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Question
Transcribed Image Text:3. The job costing system at Smith's Custom Chairs has five indirect cost pools (purchasing, material
handling, machine maintenance, product inspection, and packaging). The company is in the process of
bidding on two jobs; Job 215, an order of 15 intricate personalized chairs, and Job 325, an order of 6
standard personalized chairs. The controller wants you to compare overhead allocated under the current
simple job-costing system and a newly-designed activity-based job-costing system. Total budgeted costs
in each indirect cost pool and the budgeted quantity of activity driver are as follows:
Purchasing
Material handling
Machine maintenance
Product inspection
Packaging
Total
Budgeted
overhead
RM70,000
Number of purchase orders
Number of materials moves
Machine-hours
Number of inspections
Units produced
RM 87,500
RM 237,300
RM18,900
RM39,900
RM453,600
Activity driver budgeted
Purchase orders processed
Material moves
Machine-hours
Inspections
Units produced
Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses
more types of materials that need to be purchased, moved, and inspected relative to Job 325.
Job 215
25
10
40
9
15
Job 325
8
4
Quantity of activity
driver
2,000
5,000
10,500
1,200
3,8
60
3
6
a. Compute the total overhead allocated to each job under a simple costing system, where overhead
is allocated based on machine-hours.
b. Compute the total overhead allocated to each job under an ABC system using the appropriate
activity drivers.
c. Explain why Smith's Custom Chairs might favor the ABC system over the simple job costing
system, especially in its bidding process.
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