Activity-Based Product Costing Davis Company produces two hair dryers: regular and deluxe. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below. Regular Deluxe Total Units produced 80,000 240,000 — Prime costs $6,560,000 $25,920,000 $32,480,000 Machine hours 80,000 400,000 480,000 Engineering hours 400 3,600 4,000 Receiving orders 500 1,500 2,000 Inspection hours 900 1,800 2,700 Overhead costs: Machining $5,280,000 Engineering 2,080,000 Receiving 700,000 Inspecting products 270,000 Required: 1. Calculate the four activity rates. Machining rate $____________per machine hour Engineering rate $____________ per hour Receiving rate $__________ per order Inspecting rate $___________ per hour 2. Calculate the unit costs using activity rates. Round your answers to the nearest cent. Unit cost Regular $_________per unit Deluxe $__________ per unit Calculate the overhead cost per unit. Round your answers to the nearest cent. Overhead Cost Regular $________ per unit Deluxe $________ per unit 3. If consumption ratios instead of activity rates were used to assign costs instead of activity rates, show the cost assignment for the inspection activity. Cost assignment Regular $__________ Deluxe $__________
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 Product Costing
Davis Company produces two hair dryers: regular and deluxe. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below.
Regular Deluxe Total Units produced 80,000 240,000 — Prime costs $6,560,000 $25,920,000 $32,480,000 Machine hours 80,000 400,000 480,000 Engineering hours 400 3,600 4,000 Receiving orders 500 1,500 2,000 Inspection hours 900 1,800 2,700 Overhead costs: Machining $5,280,000 Engineering 2,080,000 Receiving 700,000 Inspecting products 270,000
Required:
1. Calculate the four activity rates.
Machining rate $____________per machine hour Engineering rate $____________ per hour Receiving rate $__________ per order Inspecting rate $___________ per hour
2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.
Unit cost Regular $_________per unit Deluxe $__________ per unit
Calculate the overhead cost per unit. Round your answers to the nearest cent.
Overhead Cost Regular $________ per unit Deluxe $________ per unit
3. If consumption ratios instead of activity rates were used to assign costs instead of activity rates, show the cost assignment for the inspection activity.
Cost assignment Regular $__________ Deluxe $__________
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