Amazon Company manufactures two products that can be produced on two different production lines; DVDs and Videotapes. The following activity and cost information has been accumulated: Number of Product Supervision Inspection Direct Labor Hours DVDs 48 480 5,200 Videotapes 112 800 2800 Overhead costs $160,000 $480,000 Required: If Amazon was using the traditional costing system with direct labor hours as the overhead costs allocation base: Calculate the total amount of overhead costs assigned to the DVDs and Videotapes Managers have decided to revise their current assignment of overhead costs; Supervision and Inspection are identified as the activity-cost drivers for overhead: Compute the cost-driver rate for each overhead activity. What is the total amount of overhead costs assigned to DVDs and Videotapes? Explain the difference between the Overhead costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?
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.
Amazon Company manufactures two products that can be produced on two different production lines; DVDs and Videotapes. The following activity and cost information has been accumulated:
Number of
Product Supervision Inspection Direct Labor Hours
DVDs 48 480 5,200
Videotapes 112 800 2800
Required:
- If Amazon was using the traditional costing system with direct labor hours as the overhead costs allocation base: Calculate the total amount of overhead costs assigned to the DVDs and Videotapes
Managers have decided to revise their current assignment of overhead costs; Supervision and Inspection are identified as the activity-cost drivers for overhead:
- Compute the cost-driver rate for each overhead activity.
- What is the total amount of overhead costs assigned to DVDs and Videotapes?
Explain the difference between the Overhead costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
