Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Activity Cost Driver Amount M XY Production setups Number of setups $ 69,000 6 14 Material handling Number of parts 52,000 60 15 Packaging costs Number of units 215,000 112,000 48,000 $ 336,000
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.
Allure Company manufactures and distributes two products, M and XY.
| Activity | Cost Driver | Amount | M | XY | ||||
| Production setups | Number of setups | $ | 69,000 | 6 | 14 | |||
| Material handling | Number of parts | 52,000 | 60 | 15 | ||||
| Packaging costs | Number of units | 215,000 | 112,000 | 48,000 | ||||
| $ | 336,000 | |||||||
What is the total overhead per unit allocated to Product M using activity-based costing (ABC)?
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$2.52.
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$1.90.
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$2.57.
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$2.10.
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