5-29 Activity-based costing. The job-costing system at Melody's Custom Framing 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 220, an order of 17 intricate personalized frames, and Job 330, an order of 5 standard personalized frames. 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. Budgeted Quantity of Activity Driver 1,500 Budgeted Overhead $ 28,500 Activity Driver Purchase orders processed Purchasing Material handling 47,700 Material moves 5,300 Machine-hours Inspections Units produced 10,000 1,700 Machine maintenance 100,000 Product inspection 6,800 13,200 $196,200 Packaging 3,300 Information related to Job 220 and Job 330 follows. Job 220 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 330. Job 330 Job 220 Number of purchase orders Number of material moves 21 18 Machine-hours 30 70 Number of inspections Units produced 10 2 17
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.
Explain why Melody’s Custom Framing might favor the ABC
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