Abalos Company manufactures two products, Product E and Product F. The company estimated it would incur 130, 890 in manufacturing overhead costs during the current period. Overhead is currently applied to the products on the basis of direct labor hours. Data concerning current period’s operation appear below: Product E Product F Estimated unit production 400 units 1,200 UNITS Direct labor hours per unit 0.70 hour 1.20 HOURS Direct materials cost per unit 10.70 16.70 Direct labor cost per unit 11.20 19.20 The company is considering using an activity based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity based costing system would use three activity cost pools. Data relating to these activities for the current period are given blow: Activity cost pool Estimated overhead costs Expected activity Product E Product F Total Machine setups 13,570 100 130 230 Purchase orders 91,520 810 1,270 2,080 General Factory 25,800 280 1,440 1,720 130,890 Requirement: Determine the unit product cost of product E for the current period using the activity based costing approach.
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.
Abalos Company manufactures two products, Product E and Product F. The company estimated it would incur 130, 890 in
|
|
Product E |
Product F |
|
Estimated unit production |
400 units |
1,200 UNITS |
|
Direct labor hours per unit |
0.70 hour |
1.20 HOURS |
|
Direct materials cost per unit |
10.70 |
16.70 |
|
Direct labor cost per unit |
11.20 |
19.20 |
The company is considering using an activity based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity based costing system would use three activity cost pools. Data relating to these activities for the current period are given blow:
|
Activity cost pool |
Estimated overhead costs |
Expected activity |
||
|
|
|
Product E |
Product F |
Total |
|
Machine setups |
13,570 |
100 |
130 |
230 |
|
Purchase orders |
91,520 |
810 |
1,270 |
2,080 |
|
General Factory |
25,800 |
280 |
1,440 |
1,720 |
|
|
130,890 |
|
|
|
Requirement:
Determine the unit product cost of product E for the current period using the activity based costing approach.
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