For many years, Yotsuya Company has used a manufacturing overhead rate based on direct labor hours. A new plant accountant has suggested that the company may be able to assign overhead costs to products more accurately by using an activity-based costing system. The accountant explains that by creating an overhead rate for each production activity that causes overhead costs, the resulting product costs will reflect an accurate measure of overhead cost. The direct material cost is P120 per unit. The budgeted hours is 8,030 direct labor hours. The accountant has identified activity centers to which overhead costs are assigned. The cost pool amounts for theses centers and their selected activity drivers for 2019: Activity Centers Costs Activity Drivers Materials handling P60,000 1,200 times handled Scheduling and setups 80,000 400 setups Design section 10,750 100 changes No. of parts 50,000 500 parts P200,750 The company’s products and other operating statistics follow: Product Qty. Produced DLH used DL Cost No. of times handled No. of Parts No. of Changes No. of Setups A 50 100 P6,000 20 6 3 5 B 100 300 18,000 40 10 5 7 Required: Compute the unit cost for each product using direct labor hours as the overhead application base. Compute the unit costs for each product using 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.
For many years, Yotsuya Company has used a manufacturing
|
Activity Centers |
Costs |
Activity Drivers |
|
Materials handling |
P60,000 |
1,200 times handled |
|
Scheduling and setups |
80,000 |
400 setups |
|
Design section |
10,750 |
100 changes |
|
No. of parts |
50,000 |
500 parts |
|
P200,750 |
The company’s products and other operating statistics follow:
|
Product |
Qty. Produced |
DLH used |
DL Cost |
No. of times handled |
No. of Parts |
No. of Changes |
No. of Setups |
|
A |
50 |
100 |
P6,000 |
20 |
6 |
3 |
5 |
|
B |
100 |
300 |
18,000 |
40 |
10 |
5 |
7 |
Required:
- Compute the unit cost for each product using direct labor hours as the overhead application base.
- Compute the unit costs for each product using activity-based costing.
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