Activity-Based Costing, Traditional Costing 1. The controller for Mitchell Supply Company has established the following overhead cost pools and cost drivers: Overhead Cost Pool Machine setups Material handling Quality control inspection Other overhead costs Total Budgeted Overhead Cost $150,000 52,500 37,500 90.000 $330.000 Cost Driver Number of setups Units of raw material Number of inspections Machine hours Overhead Cost Pool Machine setups Material handling Quality control Other overhead Budgeted Level for Cost Driver 100'setups 50,000 units 1,00 inspections 15,000 machine hours Overhead Rate $1,500 per setup $1.05 per unit $37.50 per inspection $6 per machine hour Order no. 610 has the following production requirements: Machine setups Raw material Inspections Machine hours 5 setups 10,000 units 12 inspections 600 machine hours Required: A. Compute the totál overhead that should be assigned to order no. 610 by using activity-based costing. B. Suppose that Mitchell were to use a single, predetermined overhead rate based on machine hours. Compute the rate per hour and the total overhead assigned to order no. 610. C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.
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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Activity-Based Costing, Traditional Costing
1. The controller for Mitchell Supply Company has established the following overhead cost
pools and cost drivers:
Overhead Cost Pool
Machine setups
Material handling
Quality control inspection
Other overhead costs
Total
Budgeted
Overhead Cost
$150,000
52,500
37,500
90.000
$330.000
Cost Driver
Number of setups
Units of raw material
Number of inspections
Machine hours
Overhead Cost Pool
Machine setups
Material handling
Quality control
Other overhead
Budgeted Level
for Cost Driver
100'setups
50,000 units
1,000 inspections
15,000 machine hours
Overhead Rate
$1,500 per setup
$1.05 per unit
$37.50 per inspection
$6 per machine hour
Order no. 610 has the following production requirements:
Machine setups
Raw material
Inspections
Machine hours
5 setups
10,000 units
12 inspections
600 machine hours
Required:
A. Compute the total overhead that should be assigned to order no. 610 by using
activity-based costing.
B. Suppose that Mitchell were to use a single, predetermined overhead rate based on
machine hours. Compute the rate per hour and the total overhead assigned to order no.
610.
C. Discuss the merits of an activity-based costing system in comparison with a traditional
costing system.
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