Accounting Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs. Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Expected Use of Cost Estimated Drivers per Actual Use of Activity Cost Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,094.660 12,930 Machining (all machine use) Machine hours 1,550,750 31,015.000 Customer orders Number of orders 34,710 2.670 Shipping none (direct) N/A N/A Design Cost per design 735 7 Selling Number of sales calls 384,200 22,600 WATERWAYS CORPORATION Activity- Based Overhead Activity Cost Pools Actual Cost Assigned Rates Irrigation installation $ Machining (all machine use) Customer orders Design Selling (2) How might using ABC affect decision making at Waterways? $ 0000 12,908 31,016,000 2.638 traced directly 6 22,820
Accounting Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs. Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.) WATERWAYS CORPORATION Expected Use of Cost Estimated Drivers per Actual Use of Activity Cost Pools Cost Drivers Overhead Activity Drivers Irrigation installation Labor cost $2,094.660 12,930 Machining (all machine use) Machine hours 1,550,750 31,015.000 Customer orders Number of orders 34,710 2.670 Shipping none (direct) N/A N/A Design Cost per design 735 7 Selling Number of sales calls 384,200 22,600 WATERWAYS CORPORATION Activity- Based Overhead Activity Cost Pools Actual Cost Assigned Rates Irrigation installation $ Machining (all machine use) Customer orders Design Selling (2) How might using ABC affect decision making at Waterways? $ 0000 12,908 31,016,000 2.638 traced directly 6 22,820
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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Transcribed Image Text:Accounting
Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the
complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items
that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver
that has a direct cause/effect relationship in its applied overhead costs.
Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in
which it is involved. The activities listed below area sample of possible cost pools for Waterways.
Assembling
Payroll
Billing
Plant supervision
Digging trenches
Product design
Janitorial
Purchasing materials
Machine maintenance
Selling
Machine setups
Testing
Molding
Welding
Packaging
Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a
possible ABC system for Waterways. (Round answers to 2 decimal places, e.g. 12.25.)
WATERWAYS CORPORATION
Expected
Use of Cost
Estimated
Drivers per
Activity Cost
Pools
Actual Use of
Drivers
Cost Drivers
Overhead
Activity
Irrigation installation
Labor cost
$2,094,660
12,930
12,908
Machining (all machine use)
Machine hours
1.550,750
31.015.000
31,016,000
Customer orders
Number of orders
34,710
2,670
2,638
Shipping
none (direct)
N/A
N/A
traced directly
Design
Cost per design
735
7
6
Selling
Number of sales calls
384,200
22,600
22,820
WATERWAYS CORPORATION
Activity-
Based
Overhead
Rates
Activity Cost
Pools
Actual
Cost
Assigned
Irrigation installation
$
Machining (all machine use)
Customer orders
Design
Selling
(2) How might using ABC affect decision making at Waterways?
$
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