Activity-Based Product Costing Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Budgeted Activity Cost Production $455,600 Setup 232,800 Inspection 94,600 Shipping 147,600 Customer service 48,000 Total $978,600 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Inspection Number of inspections Shipping Number of customer orders Customer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Machine Hours Number ofSetups Number ofInspections Number ofCustomer Orders CustomerServiceRequests Units White sugar 2,990 150 220 820 40 7,475 Brown sugar 1,900 230 330 2,260 250 4,750 Powdered sugar 1,910 220 550 1,020 110 4,775 Total 6,800 600 1,100 4,100 400 17,000 Each product requires 0.9 machine hour per unit. Required: If required, round all per unit amounts to the nearest cent. 1. Determine the activity rate for each activity. Production $ per machine hour Setup $ per setup Inspection $ per move Shipping $ per cust. ord. Customer service $ per customer service request 2. Determine the total and per-unit activity cost for all three products. Total Activity Cost Activity Cost Per Unit White sugar $ $ Brown sugar Powdered sugar
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.
Activity-Based Product Costing
Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory
| Activity | Budgeted Activity Cost | |||
| Production | $455,600 | |||
| Setup | 232,800 | |||
| Inspection | 94,600 | |||
| Shipping | 147,600 | |||
| Customer service | 48,000 | |||
| Total | $978,600 |
The activity bases identified for each activity are as follows:
| Activity | Activity Base |
| Production | Machine hours |
| Setup | Number of setups |
| Inspection | Number of inspections |
| Shipping | Number of customer orders |
| Customer service | Number of customer service requests |
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
| Machine Hours | Number of Setups |
Number of Inspections |
Number of Customer Orders |
Customer Service Requests |
Units | ||||||||
| White sugar | 2,990 | 150 | 220 | 820 | 40 | 7,475 | |||||||
| Brown sugar | 1,900 | 230 | 330 | 2,260 | 250 | 4,750 | |||||||
| Powdered sugar | 1,910 | 220 | 550 | 1,020 | 110 | 4,775 | |||||||
| Total | 6,800 | 600 | 1,100 | 4,100 | 400 | 17,000 |
Each product requires 0.9 machine hour per unit.
Required:
If required, round all per unit amounts to the nearest cent.
1. Determine the activity rate for each activity.
| Production | $ per machine hour |
| Setup | $ per setup |
| Inspection | $ per move |
| Shipping | $ per cust. ord. |
| Customer service | $ per customer service request |
2. Determine the total and per-unit activity cost for all three products.
| Total Activity Cost | Activity Cost Per Unit | |
| White sugar | $ | $ |
| Brown sugar | ||
| Powdered sugar |
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