Fisico Company produces exercise bikes. One of its plants produces two versions: a standard model and a deluxe model. The deluxe model has a wider and sturdier base and a variety of elec- tronic gadgets to help the exerciser monitor heartbeat, calories burned, distance traveled, etc. At the beginning of the year, the following data were prepared for this plant: Standard Model Deluxe Model Expected quantity Selling price 30,000 15,000 $370 $700 Prime costs $4.5 million 37,500 $5.25 million Machine hours 37,500 Direct labor hours 75,000 13,500 75,000 31,500 Engineering support (hours) Receiving (orders processed) Materials handling (number of moves) Purchasing (number of requisitions) Maintenance (hours used) Paying suppliers (invoices processed) Setting up batches (number of setups) 3,000 15,000 4,500 45,000 1,500 750 6,000 3,750 24,000 3,750 60 540 Additionally, the following overhead activity costs are reported: S 600,000 900,000 Maintenance Engineering support Materials handling Setups Purchasing Receiving Paying suppliers 1,200,000 750,000 450,000 300,000 300,000 $4,500,000
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.
Required:
1. Calculate the cost per unit for each product using direct labor hours to assign all
costs.
2. Calculate activity rates and determine the overhead cost per unit. Compare these costs with
those calculated using the unit-based method. Which cost is the most accurate? Explain.
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