Calculate the two overhead rates in the existing cost system for the most recent year. Create an ABC system making only the changes suggested by the results of the recent study. Give your answer in the form of a list of cost pools. Beside the name of each pool, list the driver that is to be used to allocate that cost pool to products. Calculate the overhead rates that ABC system should use for the most recent year.
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.
ABC Company’s existing costing system allocates all machine-related
| Indirect Costs: | |
| Machine related: | |
| Machine operation | P 65,000 |
| Machine setup | P 27,000 |
| Materials related: | |
| Materials Handling | P 30,000 |
| Other materials related | P 35,000 |
| Other overhead costs | P 215,000 |
| Machine hours | 4,000 |
| Pounds of materials | 25,000 |
| Setups | 1,000 |
| Purchase orders | 700 |
| Direct labor hours | 20,000 |
Required:
- Calculate the two overhead rates in the existing cost system for the most recent year.
- Create an ABC system making only the changes suggested by the results of the recent study. Give your answer in the form of a list of cost pools. Beside the name of each pool, list the driver that is to be used to allocate that cost pool to products.
- Calculate the overhead rates that ABC system should use for the most recent year.
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