Compute the total amount of indirect labor allocated to Dept. 2 using activity-based costing.
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.
The following is taken from Clausen Company’s internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of indirect labor allocated to Dept. 2 using activity-based costing.
| Direct Labor Hours | Machine Hours | ||||||||
| Operating Dept. 1 | 930 | 9,240 | |||||||
| Operating Dept. 2 | 2,170 | 6,160 | |||||||
| Totals | 3,100 | 15,400 | |||||||
| Rent and utilities | $ | 22,000 | |||||||
| Indirect labor | 17,600 | ||||||||
| 14,400 | |||||||||
| Total factory overhead | $ | 54,000 | |||||||
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