An activity based costing system is being considered at Evelia, nv to assign products overhead costs; these overhead costs are currently assigned strictly by number of units produced. First, the two overhead costs of Rent expense and Insurance expense would be allocated to three activity cost pools - Finishing, Sanding, and Other - based on resource consumption. The information used to perform these allocations is below: Overhead Costs: Rent expense: $2,000,000 Insurance expense: $1,650,000 Distribution of Resource Consumption across Activity Cost Pools: Overhead Cost Activity Cost Pools Finishing Sanding Other Rent expense 0.45 0.25 0.30 Insurance expense 0.20 0.35 0.45 In the second stage, Finishing costs would be assigned to products using direct labor hours and Sanding costs would be assigned to products using the number of machine hours. The costs in the Other activity pool would not be assigned to products. Activity data for the company's two products is as follows: direct labor hours machine hours Units Produced Product XR-2: 15,000 10,500 6,400 Product XR-1: 19,000 29,500 2,200 Total: 34,000 40,000 8,600 PART A: How much overhead cost would be assigned to the Sanding activity cost pool under activity based costing in the first stage of allocation? A.$1,077,500 (I believe this is correct?) B. $830,000 C. $330,000 D. $977,500 E. $1,230,000 PART B: The activity rate for the Sanding activity cost pool under activity based costing would be closest to: A. $26.94 ( I think this is correct?) B. $42.43 C. $9.71 D. $24.44 E. $14.44 PART C: To the nearest dollar, how would the overhead cost assigned to Product XR-1 change under activity based costing compared to their current accounting methods? There would be an (INCREASE/DECREASE?) in assigned overhead under activity based costing, and the amount of the change would be $_________?
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.
An activity based costing system is being considered at Evelia, nv to assign products
Overhead Costs:
- Rent expense: $2,000,000
- Insurance expense: $1,650,000
Distribution of Resource Consumption across Activity Cost Pools:
| Overhead Cost | Activity Cost Pools | ||
| Finishing | Sanding | Other | |
| Rent expense | 0.45 | 0.25 | 0.30 |
| Insurance expense | 0.20 | 0.35 | 0.45 |
In the second stage, Finishing costs would be assigned to products using direct labor hours and Sanding costs would be assigned to products using the number of machine hours. The costs in the Other activity pool would not be assigned to products. Activity data for the company's two products is as follows:
| direct labor hours | machine hours | Units Produced | |
| Product XR-2: | 15,000 | 10,500 | 6,400 |
| Product XR-1: | 19,000 | 29,500 | 2,200 |
| Total: | 34,000 | 40,000 | 8,600 |
PART A:
How much overhead cost would be assigned to the Sanding activity cost pool under activity based costing in the first stage of allocation?
A.$1,077,500 (I believe this is correct?)
B. $830,000
C. $330,000
D. $977,500
E. $1,230,000
PART B:
The activity rate for the Sanding activity cost pool under activity based costing would be closest to:
A. $26.94 ( I think this is correct?)
B. $42.43
C. $9.71
D. $24.44
E. $14.44
PART C:
To the nearest dollar, how would the overhead cost assigned to Product XR-1 change under activity based costing compared to their current accounting methods?
There would be an (INCREASE/DECREASE?) in assigned overhead under activity based costing, and the amount of the change would be $_________?
Step by step
Solved in 3 steps with 2 images
