Goodwill Ridge manufactures four types of farming products: A, B, C and D. The cost and production data for the month ended are as follows: Overhead costs Expediting and scheduling costs 840,000 Materials handling costs 630,000 Set-up costs 1,050,000 Short-run variable costs 276,000 2,796,000 Product Units produced Material cost per unit Direct labour hours per unit Machine hours per unit Number of production runs A 1,000 135 1 2 200 B 1,000 90 1 2 200 C 10,000 40 0.25 1 500 D 10,000 50 0.25 1 500 Direct labour cost is $25 per hour. Required: Calculate the unit product costs for each product line using: Traditional costing, assuming machine hours is the allocation base. Activity-based costing, assuming set-up, expediting and scheduling, and materials handling costs are driven by the number of production runs, and short-run variable costs are driven by machine hours.
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.
|
Overhead costs |
|
|
Expediting and scheduling costs |
840,000 |
|
Materials handling costs |
630,000 |
|
Set-up costs |
1,050,000 |
|
Short-run variable costs |
276,000 |
|
|
2,796,000 |
|
Product |
Units produced |
Material cost per unit |
Direct labour hours per unit |
Machine hours per unit |
Number of production runs |
|
A |
1,000 |
135 |
1 |
2 |
200 |
|
B |
1,000 |
90 |
1 |
2 |
200 |
|
C |
10,000 |
40 |
0.25 |
1 |
500 |
|
D |
10,000 |
50 |
0.25 |
1 |
500 |
Direct labour cost is $25 per hour.
Required:
Calculate the unit product costs for each product line using:
- Traditional costing, assuming machine hours is the allocation base.
- Activity-based costing, assuming set-up, expediting and scheduling, and materials handling costs are driven by the number of production runs, and short-run variable costs are driven by machine hours.
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