Smithville Industries has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on machine-hours (MHs). The company has two products, Manual and Power, about which it has provided the following data: Manual Direct materials per unit Direct labor per unit Annual production units Activities and Activity Measures Machining support (MHs) Setting up machines (setups) Parts administration (part types) Total $ $ Machining support: MHs Setting up machines: setups Parts administration: part types 27.50 7.80 40,000 The company's estimated total manufacturing overhead for the year is $2,500,000 and the company's estimated total machine hours for the year is 60,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Power $ 64.90 $ 23.40 15,000 Estimated Overhead Cost $ 1,200,000 500,000 800,000 Manual $ 2,500,000 10,000 2,000 1,600 Power 50,000 500 400 Required: a. Determine the product cost per unit of each of the company's two products under the traditional costing system. b. Determine the product cost per unit of each of the company's two products under activity-based costing system. c. Which costing system is more accurate? How were the products miss-costed in the less accurate system?
Smithville Industries has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on machine-hours (MHs). The company has two products, Manual and Power, about which it has provided the following data: Manual Direct materials per unit Direct labor per unit Annual production units Activities and Activity Measures Machining support (MHs) Setting up machines (setups) Parts administration (part types) Total $ $ Machining support: MHs Setting up machines: setups Parts administration: part types 27.50 7.80 40,000 The company's estimated total manufacturing overhead for the year is $2,500,000 and the company's estimated total machine hours for the year is 60,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Power $ 64.90 $ 23.40 15,000 Estimated Overhead Cost $ 1,200,000 500,000 800,000 Manual $ 2,500,000 10,000 2,000 1,600 Power 50,000 500 400 Required: a. Determine the product cost per unit of each of the company's two products under the traditional costing system. b. Determine the product cost per unit of each of the company's two products under activity-based costing system. c. Which costing system is more accurate? How were the products miss-costed in the less accurate system?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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:Smithville Industries has a traditional costing system in which it applies
manufacturing overhead to its products using a predetermined overhead rate based
on machine-hours (MHs). The company has two products, Manual and Power,
about which it has provided the following data:
Manual
Direct materials per unit
Direct labor per unit
Annual production units
Activities and Activity Measures
Machining support (MHs)
Setting up machines (setups)
Parts administration (part types)
Total
$
$
Machining support: MHs
Setting up machines: setups
Parts administration: part types
27.50
7.80
40,000
The company's estimated total manufacturing overhead for the year is $2,500,000
and the company's estimated total machine hours for the year is 60,000.
The company is considering using a variation of activity-based costing to determine
its unit product costs for external reports. Data for this proposed activity-based
costing system appear below:
Power
$ 64.90
$ 23.40
15,000
Estimated Overhead Cost
$ 1,200,000
500,000
800,000
Manual
$ 2,500,000
10,000
2,000
1,600
Power
50,000
500
400
Required:
a. Determine the product cost per unit of each of the company's two products
under the traditional costing system.
b. Determine the product cost per unit of each of the company's two products
under activity-based costing system.
c. Which costing system is more accurate? How were the products miss-costed in
the less accurate system?
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