36. LO.3 (Activity analysis) Management at Glover & Lamb Inc. is concerned about controlling factory labor-related costs. Th e following summary is the result of an analy- sis of the major categories of labor costs for 2010: Category Amount Base wages $63,000,000 Health-care benefi ts 10,500,000 Payroll taxes 5,018,832 Overtime 8,697,600 Training 1,875,000 Retirement benefi ts 6,898,500 Workers’ compensation 1,199,940 Following are some of the potential cost drivers identifi ed by the company for labor- related costs, along with their 2010 volume levels: Potential Activity Driver 2010 Volume Level Average number of factory employees 2,100 Number of new hires 300 Number of regular labor hours worked 3,150,000 Number of overtime hours worked 288,000 Total factory wages paid $71,697,600 Volume of production in units 12,000,000 Number of production process changes 600 Number of production schedule changes 375 a. For each cost pool, determine the cost per unit of the activity driver using the activ- ity driver that you believe has the closest relationship to the cost pool. b. Based on your judgments and calculations in (a), which activity driver should receive the most attention from company managers in their eff orts to control labor-related costs? How much of the total labor-related cost is attributable to this activity driver? c. In the contemporary environment, many fi rms ask their employees to work record levels of overtime. What activity driver does this practice suggest is a major con- tributor to labor-related costs? Explain
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.
36. LO.3 (Activity analysis) Management at Glover & Lamb Inc. is concerned about
controlling factory labor-related costs. Th e following summary is the result of an analy-
sis of the major categories of labor costs for 2010:
Category Amount
Base wages $63,000,000
Health-care benefi ts 10,500,000
Payroll taxes 5,018,832
Overtime 8,697,600
Training 1,875,000
Retirement benefi ts 6,898,500
Workers’ compensation 1,199,940
Following are some of the potential cost drivers identifi ed by the company for labor-
related costs, along with their 2010 volume levels:
Potential Activity Driver 2010 Volume Level
Average number of factory employees 2,100
Number of new hires 300
Number of regular labor hours worked 3,150,000
Number of overtime hours worked 288,000
Total factory wages paid $71,697,600
Volume of production in units 12,000,000
Number of production process changes 600
Number of production schedule changes 375
a. For each cost pool, determine the cost per unit of the activity driver using the activ-
ity driver that you believe has the closest relationship to the cost pool.
b. Based on your judgments and calculations in (a), which activity driver should receive
the most attention from company managers in their eff orts to control labor-related
costs? How much of the total labor-related cost is attributable to this activity driver?
c. In the contemporary environment, many fi rms ask their employees to work record
levels of overtime. What activity driver does this practice suggest is a major con-
tributor to labor-related costs? Explain
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