DirectLabor-Hours per Unit AnnualProduction Hubs 0.70 19,000 units Sprockets 0.30 47,000 units Additional information about the company follows: Hubs require $35 in direct materials per unit, and Sprockets require $12. The direct labor wage rate is $11 per hour. Hubs require special equipment and are more complex to manufacture than Sprockets. The ABC system has the following activity cost pools: Estimated Activity Activity Cost Pool (Activity Measure) Overhead
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.
Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:
| Direct Labor-Hours per Unit |
Annual Production |
||
| Hubs | 0.70 | 19,000 | units |
| Sprockets | 0.30 | 47,000 | units |
Additional information about the company follows:
-
Hubs require $35 in direct materials per unit, and Sprockets require $12.
-
The direct labor wage rate is $11 per hour.
-
Hubs require special equipment and are more complex to manufacture than Sprockets.
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The ABC system has the following activity cost pools:
| Estimated | Activity | ||||
| Activity Cost Pool (Activity Measure) | Hubs | Sprockets | Total | ||
| Machine setups (number of setups) | $ | 12,825 | 75 | 60 | 135 |
| Special processing (machine-hours) | $ | 220,000 | 4,400 | 0 | 4,400 |
| General factory (organization-sustaining) | $ | 238,900 | NA | NA | NA |
Required:
1. Compute the activity rate for each activity cost pool.
2. Determine the unit product cost of each product according to the ABC system.
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