BASIC PROBLEM Doaktown Products manufactures fishing equipment for recreational uses The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost ac- countants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows: M-008 M-123 Total Direct materials.... Direct labor.... $100,000 100,000 $80,000 40,000 $180,000 140,000 Management determined that overhead costs are caused by three cost drivers. These driv- ers and their costs for last year were as follows: Activity Level Cost Driver Costs M-008 M-123 Total Number of machine-hours.... Number of production runs. ... Number of inspections. Total overhead.... $120,000 70,000 90,000 5,000 3,000 8,000 10 10 20 20 40 60 $280,000
BASIC PROBLEM Doaktown Products manufactures fishing equipment for recreational uses The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost ac- countants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows: M-008 M-123 Total Direct materials.... Direct labor.... $100,000 100,000 $80,000 40,000 $180,000 140,000 Management determined that overhead costs are caused by three cost drivers. These driv- ers and their costs for last year were as follows: Activity Level Cost Driver Costs M-008 M-123 Total Number of machine-hours.... Number of production runs. ... Number of inspections. Total overhead.... $120,000 70,000 90,000 5,000 3,000 8,000 10 10 20 20 40 60 $280,000
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:BASIC PROBLEM
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi
plant produces the company's two versions of a special reel used for river fishing. The two
models are the M-008, a basic reel, and the M-123, a new and improved version. Cost ac-
countants at company headquarters have prepared costs for the two reels for the most recent
period. The plant manager is concerned. The cost report does not coincide with her intuition
about the relative costs of the two models She has asked you to review the cost accounting
and help her prepare a response to headquarters.
Manufacturing overhead is currently assigned to products based on their direct labor
costs. For the most recent month, manufacturing overhead was $280,000. During that time,
the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct
costs of production were as follows:
M-123
Total
800-M
$100,000
$180,000
Direct materials
Direct labor.
000'08$
....
000'0L
....
000'00
000'0v
Management determined that overhead costs are caused by three cost drivers. These driv-
ers and their costs for last year were as follows:
Activity Level
Cost Driver
Costs
800-W
M-123
Total
Number of machine-hours
Number of production runs
Number of inspections
$120,000
000'
000'8
000'
...
.***.
40
000'06
09
Total overhead
$280,000
....
1) Cost driver rate of machine-hours
12.95
2) Cost driver rate of production runs
3) Cost driver rate of inspections
4) Total cost of M-o08
205030.00
5) Total cost of M-123
123050.00
6) Unit cost of M-oo8
7) Unit cost of M-123
3050.00
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