Characteristics of Production Process, Cost Measurement Vince Kim, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year: Number of direct labor hours 6,720 Direct labor cost $67,200 Overhead cost $50,400 During the year, the following actual amounts were experienced: Number of direct labor hours 6,045 Direct labor incurred $66,495 Overhead incurred $50,500 Vince Kim, owner of EcoScape, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Vince met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Vince created a new company, Irrigation Specialties, to handle the subdivision business. In its first three months in business, Irrigation Specialties experienced the following: June July August Number of systems installed 68 88 108 Direct materials used $17,952 $23,232 $28,512 Direct labor incurred $11,968 $15,488 $19,008 Overhead $10,771.20 $10,841.60 $11,404.80 Required: 1. Should Irrigation Specialties use process costing or job-order costing? 2. If Irrigation Specialties uses an actual costing system, what is the cost of a single system installed in June? In July? In August? Round your answers to the nearest dollar. June $ per system July $ per system August $ per system 3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $78,200, and estimated production is 680 watering systems. What is the predetermined overhead rate per system? $ per system installed What is the cost of a single system installed in June? In July? In August? June $ per system July $ per system August $ per system
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.
Characteristics of Production Process, Cost Measurement
Vince Kim, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. EcoScape estimated the following for the year:
| Number of direct labor hours | 6,720 |
| Direct labor cost | $67,200 |
| $50,400 |
During the year, the following actual amounts were experienced:
| Number of direct labor hours | 6,045 |
| Direct labor incurred | $66,495 |
| Overhead incurred | $50,500 |
Vince Kim, owner of EcoScape, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Vince met with the subdivision builders and offered to install a basic watering system in each house. The idea was accepted enthusiastically, so Vince created a new company, Irrigation Specialties, to handle the subdivision business. In its first three months in business, Irrigation Specialties experienced the following:
| June | July | August | |
| Number of systems installed | 68 | 88 | 108 |
| Direct materials used | $17,952 | $23,232 | $28,512 |
| Direct labor incurred | $11,968 | $15,488 | $19,008 |
| Overhead | $10,771.20 | $10,841.60 | $11,404.80 |
Required:
1. Should Irrigation Specialties use
2. If Irrigation Specialties uses an actual costing system, what is the cost of a single system installed in June? In July? In August? Round your answers to the nearest dollar.
| June | $ per system |
| July | $ per system |
| August | $ per system |
3. Now assume that Irrigation Specialties uses a normal costing system. Estimated overhead for the year is $78,200, and estimated production is 680 watering systems. What is the predetermined overhead rate per system?
$ per system installed
What is the cost of a single system installed in June? In July? In August?
| June | $ per system |
| July | $ per system |
| August | $ per system |
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