A company manufactures two products, Drills and Saws. Their total estimated overhead cost for the year is $1,044,000 and expected labor hours are 72,600 hours; 32,600 for drills and 40,000 for saws. The company is considering using ABC for applying overhead to their products, instead of a single traditional overhead rate. They have broken down their overhead costs into the following cost pools and cost drivers. Cost Pools Estimated Overhead $741,600 Machine Setup Inspection $302,400 Cost Driver Number of Setups Number of Inspections Expected Use of Drivers 10,000 setups 12,600 inspections Usage by Drills 5,600 6,800 Usage by Saws 4,400 5,800
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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