Comparing ABC and Plantwide Overhead Cost AssignmentsWellington Chocolate Company uses activity-based costing (ABC). Thecontroller identified two activities and their budgeted costs: Setting up equipment Other overhead $ 432,000 1,440,000 Setting up equipment is based on setup hours, and other overhead isbased on oven hours.Wellington produces two products, Fudge and Cookies. Information oneach product is as follows: Fudge Cookies Units producedSetup hoursOven hours 8,0006,4001,600 445,0001,6008,000 Required:(Note: Round answers to two decimal places.) 1. Calculate the activity rate for (a) setting up equipment and (b)other overhead.2. How much total overhead is assigned to Fudge using ABC?3. What is the unit overhead assigned to Fudge using ABC? 4. Now, ignoring the ABC results, calculate the plantwide overheadrate, based on oven hours.5. How much total overhead is assigned to Fudge using the plantwide overhead rate?6. CONCEPTUAL CONNECTION Explain why the total overheadassigned to Fudge is different under the ABC system (i.e., using theactivity rates) than under the non-ABC system (i.e., using theplantwide rate).
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.
Comparing ABC and Plantwide
Wellington Chocolate Company uses activity-based costing (ABC). The
controller identified two activities and their budgeted costs:
|
Setting up equipment Other overhead |
$ 432,000 1,440,000 |
Setting up equipment is based on setup hours, and other overhead is
based on oven hours.
Wellington produces two products, Fudge and Cookies. Information on
each product is as follows:
| Fudge | Cookies | |
| Units produced Setup hours Oven hours |
8,000 6,400 1,600 |
445,000 1,600 8,000 |
Required:
(Note: Round answers to two decimal places.)
1. Calculate the activity rate for (a) setting up equipment and (b)
other overhead.
2. How much total overhead is assigned to Fudge using ABC?
3. What is the unit overhead assigned to Fudge using ABC?
4. Now, ignoring the ABC results, calculate the plantwide overhead
rate, based on oven hours.
5. How much total overhead is assigned to Fudge using the plantwide overhead rate?
6. CONCEPTUAL CONNECTION Explain why the total overhead
assigned to Fudge is different under the ABC system (i.e., using the
activity rates) than under the non-ABC system (i.e., using the
plantwide rate).
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