Edge Manufacturing produces two types of entry doors: Deluxe and Standard. The assignment basis for support costs has been direct labor dollars. For 2009, Edge Manufacturing compiled the following data for the two products: Deluxe Standard Sales units $50,000 $400,000 Sales price per unit $650.00 $475.00 Direct material and labor costs per unit $180.00 $130.00 Manufacturing support costs per unit $80.00 $120.00 Last year, Edge Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 20X5: Activity Cost Driver Cost Total Deluxe Standard Setups # of setups $500,000 500 400 100 Machine-related # of machine hours $44,000,000 600,000 300,000 300,000 Packing # of shipments $5,000,000 250,000 50,000 200,000 NB.: # = number a. Using the activity-based costing data presented above: Compute the cost-driver rate for each overhead activity. Compute the manufacturing overhead cost per unit for each type of entry door. Compute the total cost to manufacture one unit of each type of entry door.
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.
Allocation of
Edge Manufacturing produces two types of entry doors: Deluxe and Standard. The assignment basis for support costs has been direct labor dollars. For 2009, Edge Manufacturing compiled the following data for the two products:
|
|
Deluxe |
Standard |
|
Sales units |
$50,000 |
$400,000 |
|
Sales price per unit |
$650.00 |
$475.00 |
|
Direct material and labor costs per unit |
$180.00 |
$130.00 |
|
Manufacturing support costs per unit |
$80.00 |
$120.00 |
Last year, Edge Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign.
She obtained the following ABC information for 20X5:
|
Activity |
Cost Driver |
Cost |
Total |
Deluxe |
Standard |
|
Setups |
# of setups |
$500,000 |
500 |
400 |
100 |
|
Machine-related |
# of machine hours |
$44,000,000 |
600,000 |
300,000 |
300,000
|
|
Packing |
# of shipments |
$5,000,000 |
250,000 |
50,000 |
200,000 |
NB.: # = number
a. Using the activity-based costing data presented above:
- Compute the cost-driver rate for each overhead activity.
- Compute the manufacturing overhead cost per unit for each type of entry door.
- Compute the total
cost to manufacture one unit of each type of entry door.
b. Why would the CFO consider an ABC analysis to be valuable?
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