Drill Master Corp. produces two products: saws and drills. Three activities are used in their manufacture. These activities and their associated costs and bases are as follows: Activity Budgeted Costs Activity Base Stamping $200,000 Machine hours Assembly 400,000 Labor hours Setup 36,000 Number of setups Activity Base Saws Drills Total Machine hours 1,000 3,000 4,000 Labor hours 10,000 20,000 30,000 Number of setups 6 12 18 Units produced 500 600 a. Determine the activity rate for each activity. b. Determine the factory overhead to be allocated to EACH unit of product. Round to the nearest cent. Show work!!
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.
Drill Master Corp. produces two products: saws and drills. Three activities are used in their manufacture. These activities and their associated costs and bases are as follows:
| Activity |
Budgeted Costs |
Activity Base |
| Stamping |
$200,000 |
Machine hours |
| Assembly |
400,000 |
Labor hours |
| Setup |
36,000 |
Number of setups |
| Activity Base |
Saws |
Drills |
Total |
| Machine hours |
1,000 |
3,000 |
4,000 |
| Labor hours |
10,000 |
20,000 |
30,000 |
| Number of setups |
6 |
12 |
18 |
| Units produced |
500 |
600 |
a. Determine the activity rate for each activity.
b. Determine the factory
The activity rate is calculated as the estimated overhead costs divided by the estimated base activity. The overhead is applied to the production on the basis of pre-determined overhead rate.
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