Entity Blue makes and sells two products, X and Y. Data for production and sales each month are as follows: Product X Product Y Sales demand 4,000 units 8,000 units Direct material cost/unit GHȼ20 GHȼ10 Direct labour hours/unit 0.1 hour 0.2 hours Direct labour cost/unit GHȼ2 GHȼ4 Production overheads are GHȼ500,000 each month. These are absorbed on a direct labour hour basis. An analysis of overhead costs suggests that there are four main activities that cause overhead expenditure. Activity Total cost Cost driver Total number Product X Product Y GHȼ Batch setup 100,000 No. of set-ups 20 10 10 Order handling 200,000 No. of orders 40 24 16 Machining 120,000 Machine hours 15,000 6,000 9,000 Quality control 80,000 No. of checks 32 18 14 500,000 Required: Calculate the full production costs for Product X and Product Y, using: (a) traditional absorption costing (b) 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.
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