Company LSD LTD has 4 types of overhead . The four categories and expected costs for each category for next year are listed below Company LSD LTD Activity cost Setups cost $150,000 Inspection cost $90,000 Maintenance cost $120,000 Material Handling cost $ 82,000 Actual overhead Cost $30,000 Estimates for the proposed job [Job #23] are as follows Direct Materials $6,000 DL (1000 hours) $10,000 Machine Hours [maintenance cost] 500 # of material moves 12 # of setups 5 # of inspections 10 Units produced 240 The company has been asked to submit a bid for a proposed job. The plant manager thinks getting this job would result in new business in future years. Usually bids are based upon full manufacturing cost plus 30%. In the past , full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH]. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity based cost drivers that would be used are : Cost Drivers Machine Hours 15,000 Material Moves 4,600 Setups 3,500 Quality Inspections 5,000 Required : Part 1 Calculate the predetermined rates using the Functional based costing . Determine the amount of overhead that would be applied to the proposed project if Functional based costing method is used Determine the total cost of the proposed job using ABC Calculate the unit cost using FBC What bid price is the company going to use according to its FBC policy? Part 2 Calculate the predetermined rates using the activity based costing . Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used Determine the total cost of the proposed job using ABC . Calculate the unit cost using ABC. What bid price is the company going to use according to its policy? Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion?
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.
Company LSD LTD has 4 types of
|
Company LSD LTD |
|
|
Activity cost |
|
|
Setups cost |
$150,000 |
|
Inspection cost |
$90,000 |
|
Maintenance cost |
$120,000 |
|
Material Handling cost |
$ 82,000 |
|
Actual overhead Cost |
$30,000 |
Estimates for the proposed job [Job #23] are as follows
|
Direct Materials |
$6,000 |
|
DL (1000 hours) |
$10,000 |
|
Machine Hours [maintenance cost] |
500 |
|
# of material moves |
12 |
|
# of setups |
5 |
|
# of inspections |
10 |
|
Units produced |
240 |
The company has been asked to submit a bid for a proposed job. The plant manager thinks getting this job would result in new business in future years. Usually bids are based upon full
In the past , full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH]. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers.
Expected activity for the four activity based cost drivers that would be used are :
|
Cost Drivers |
|
|
Machine Hours |
15,000 |
|
Material Moves |
4,600 |
|
Setups |
3,500 |
|
Quality Inspections |
5,000 |
Required :
Part 1
- Calculate the predetermined rates using the Functional based costing .
- Determine the amount of overhead that would be applied to the proposed project if Functional based costing method is used
- Determine the total cost of the proposed job using ABC
- Calculate the unit cost using FBC
- What bid price is the company going to use according to its FBC policy?
Part 2
- Calculate the predetermined rates using the activity based costing .
- Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used
- Determine the total cost of the proposed job using ABC .
- Calculate the unit cost using ABC.
- What bid price is the company going to use according to its policy?
- Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion?
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