7. Calculate the total amount of product cost distortion for entire product line caused by Knickknack's traditional, volume-based costing system. (Round your Intermediate calculations to 2 decimal places. Negative amount should be Indicated by a minus sign.) Total amount of cost distortion Odds Ends
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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Subject :- Accounting
![Required Information
Problem 5-57 Activity-Based Costing; Activity Cost Pools; Pool Rates; Calculation of Product Costs; Cost
Distortion (LO 5-1, 5-2,5-3,5-4, 5-5)
[The following information applies to the questions displayed below.]
Knickknack, Inc., manufactures two products: Odds and Ends. The firm uses a single, plantwide overhead rate based on
direct-labor hours. Production and product-costing data are as follows:
Production quantity
Direct material
Direct labor (not including setup time)
Manufacturing overhead
Total cost per unit
Manufacturing overhead budget:
Machine-related costs
Setup and inspection
Engineering
Plant-related costs
Total
Predetermined overhead rate:
Budgeted manufacturing overhead
Budgeted direct-labor hours
Activity Cost Pool
Machine-related costs
Setup and inspection
Engineering
Plant-related costs
Odds
1,000 units
$ 40
Cost Driver
$
30 (2 hr. at $15)
96 (2 hr. at $48)
166
$450,000
180,000
90,000
96,000
$816,000
$816,000
(1,000) (2) + (5,000) (3)
Machine hours
Number of production runs
Engineering change orders
Square footage of space.
Ends
5,000 units
$ 60
Knickknack, Inc., prices its products at 120 percent of cost, which yields target prices of $199.20 for Odds and $298.80 for
Ends. Recently, however, Knickknack has been challenged in the market for Ends by a European competitor, Bricabrac
Corporation. A new entrant in this market, Bricabrac has been selling Ends for $220 each. Knickknack's president is
puzzled by Bricabrac's ability to sell Ends at such a low cost. She has asked you (the controller) to look into the matter. You
have decided that Knickknack's traditional, volume-based product-costing system may be causing cost distortion between
the firm's two products. Ends are a high-volume, relatively simple product. Odds, on the other hand, are quite complex and
exhibit a much lower volume. As a result, you have begun work on an activity-based costing system.
$
9,000 hr.
= $48 per direct-labor hour
Budgeted Level of
Cost Driver
45 (3 hr. at $15)
144 (3 hr. at $48)
249
40 runs
100 change orders
1,920 sq. ft.
You have gathered the following additional Information:
• Each odd requires 4 machine hours, whereas each end requires 1 machine hour.
Odds are manufactured in production runs of 50 units each. Ends are manufactured in 250-unit batches.
Three-quarters of the engineering activity, as measured in terms of change orders, is related to Odds.
The plant has 1,920 square feet of space, 80 percent of which is used in the production of Odds.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7b6ce77-7d1f-42c7-90fc-6e082dc1db1b%2F70c65297-1abe-48c1-8e4f-7231efe54863%2Fmmmusf9_processed.png&w=3840&q=75)
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