Consider the following information by WriteUps Limited, a company that manufactures cardboard paper, plain white paper and blue margin paper. WriteUps Limited uses an Activity-Based Costing System in allocating overhead costs to the various paper products it manufactures. The following table was given to you by your costing clerk:
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.
Consider the following information by WriteUps Limited, a company that manufactures cardboard paper, plain white paper and blue margin paper.
WriteUps Limited uses an Activity-Based Costing System in allocating
|
Prime costs and usage per pad of the product |
|
|
||
|
|
Cardboard |
Plain White |
Blue Margin |
Cost per hour or kg |
|
Machine hours |
6 minutes |
3 minutes |
5 minutes |
R 75 |
|
Labour hours |
12 minutes |
5 minutes |
10 minutes |
R 60 |
|
Paper Pulp |
750 grams |
250 grams |
300 grams |
R 25 |
Overhead costs are allocated amongst four department: Production department Alpha, Production department Omega, the Packaging Service department and the Maintenance Service department. Production department Alpha is machine intensive and Production department Omega is labour intensive. Another costing clerk has prepared the following table for you:
Cost Pools
|
|
Cardboard |
Plain White |
Blue Margin |
Total |
|
Alpha |
? |
? |
? |
R640 000 |
|
Omega |
? |
? |
? |
R1 250 000 |
|
Packing of Orders |
? |
? |
? |
R350 000 |
|
Maintenance |
? |
? |
? |
R840 000 |
Cost Drivers and Production
|
|
Cardboard |
Plain White |
Blue Margin |
Total |
|
Maintenance hours |
3 000 |
1 000 |
2 000 |
6 000 |
|
Orders of paper |
300 |
750 |
500 |
1 550 |
|
Quality Control checks |
500 |
800 |
600 |
1 900 |
|
Production (exam pads) |
130 000 |
240 000 |
180 000 |
550 000 |
|
Labour hours |
18 000 |
33 000 |
25 000 |
76 000 |
|
Machine hours |
10 000 |
18 000 |
12 000 |
40 000 |
Sales Data
|
|
Cardboard |
Plain White |
Blue Margin |
|
|
Mark-up on cost |
15% |
25% |
20% |
|
|
Competitors prices |
R46.26 |
R26.12 |
R36.50 |
|
Required: (Show all your workings and round off the rates to 2 decimal places)
- Calculate the prime cost of single cardboard paper, plain white paper and blue margin
paper.
- Determine the selling price of a single cardboard paper, plain white paper and blue margin paper using the type of costing system that the company uses.
- Based on your calculations prepare in question 2, is there anything that you would conclude about your calculations and compared to the data given?
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