Athens Company is conducting a time-driven activity-based costing study in its Engineering Department. To aid the study, the company provided the following data regarding its Engineering Department and the customers served by the department: Number of employees 8 Average salary per employee $ 62,000 Weeks of employment per year 52 Hours worked per week 40 Practical capacity percentage 85% New Product Design Engineering Change Orders Product Testing Hours per unit of the activity 40 20 8 Customer A Customer B Customer C All Customers Number of new products designed 4 3 5 130 Number of engineering change orders 5 2 2 200 Number of products tested 10 6 8 110 Required: 1. Using the customer cost analysis as demonstrated in Exhibit 7A-2, compute the following: a. The cost per hour of the resource supplied in the Engineering Department. b. The time-driven activity rate per hour for each of Athens' three activities. c. The total engineering costs consumed by Customer A, Customer B, and Customer C.
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.
Athens Company is conducting a time-driven activity-based costing study in its Engineering Department. To aid the study, the company provided the following data regarding its Engineering Department and the customers served by the department:
| Number of employees | 8 |
|---|---|
| Average salary per employee | $ 62,000 |
| Weeks of employment per year | 52 |
| Hours worked per week | 40 |
| Practical capacity percentage | 85% |
| New Product Design | Engineering Change Orders | Product Testing | |
|---|---|---|---|
| Hours per unit of the activity | 40 | 20 | 8 |
| Customer A | Customer B | Customer C | All Customers | |
|---|---|---|---|---|
| Number of new products designed | 4 | 3 | 5 | 130 |
| Number of engineering change orders | 5 | 2 | 2 | 200 |
| Number of products tested | 10 | 6 | 8 | 110 |
Required:
1. Using the customer cost analysis as demonstrated in Exhibit 7A-2, compute the following:
a. The cost per hour of the resource supplied in the Engineering Department.
b. The time-driven activity rate per hour for each of Athens' three activities.
c. The total engineering costs consumed by Customer A, Customer B, and Customer C.
2. Using the capacity analysis as demonstrated in Exhibit 7A-3, compute the following:
a. The used capacity in hours.
b. The unused capacity in hours.
c. The unused capacity in number of employees.
d. The impact on expenses of matching capacity with demand.
3. Assume that Athens is considering expanding its business such that the estimated number of new products designed would increase to 200, the number of engineering change orders would jump to 270, and the number of products tested would rise to 190. Using these revised figures, calculate the following:
a. The used capacity in hours.
b. The unused capacity in hours.
c. The unused capacity in number of employees.
d. The impact on expenses of matching capacity with demand.
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