Isaacson's Fine Furnishings manufactures upscale custom furniture.Isaacson's currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,100,000 of manufacturing overhead to individual jobs. However, Delores Cermak, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $740,000 of manufacturing overhead while the Finishing Department incurs $360,000 of manufacturing overhead. Cermak has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department. 1. Compute the plantwide overhead rate assuming that Isaacson's expects to incur 27,500 total DL hours during the year. 2. Compute departmental overhead rates assuming that Isaacson's expects to incur 14,800 MH in the Machining Department and 18,000 DL hours in the Finishing Department during the year.
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.
currently uses a plantwide
owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $740,000 of manufacturing overhead while the Finishing Department incurs $360,000 of manufacturing overhead.
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1.
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Compute the plantwide overhead rate assuming that
Isaacson's expects to incur 27,500 total DL hours during the year.
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2.
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Compute departmental overhead rates assuming that
Isaacson's expects to incur 14,800 MH in the Machining Department and 18,000 DL hours in the Finishing Department during the year.
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Manufacturing overhead: It is the indirect cost incurred as a part of manufacturing the products. These costs are not directly related to the units manufactured. So they are allocated to the manufactured units based on estimated cost drivers.
Pre-determined overhead allocate rate: It the rate of allocating the expected overheads to the actual units or hours for a specific accounting period.
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