Jones Inc. is a manufacturer that uses traditional costing system to allocate overhead cost where they use direct labor cost as the allocation basis. Lately, the CFO of the company had become increasingly aware because of the imbalance between product’s budgeted and actual cost. Horfield Inc. makes four products: Round, Rectangular, Square and Triangle The costs for Direct Labor, Direct Material and Overhead are as of below: Round Rectangular Square Triangle Units Produced 800 1500 800 1200 DM, $ 100,000 200,000 150,000 250,000 DL Hour 10,000 30,000 40,000 20,000 Avg Cost per DL hour $10/ per hour Overhead Cost 200% of DL cost Overhead Cost Driver Allocation Base Total Cost Cost Driver Quantity Depreciation 300,000 Machine Hour 3,000 Setup 700,000 Setup Hour 1,000 Rent 1,000,000 Square Feet 100,000 Resource used by Products Cost Driver Round Rectangular Square Triangle Machine Hour 500 900 400 1,200 Setup Hour 200 300 100 400 Square Feet 20,000 30,000 10,000 40,000 Requirement: Compute the following: a) overhead cost b)total product cost c) unit product cost Using both traditional method and ABC method. 2.Which products were incorrectly priced using traditional method? What difficulties might result from incorrectly priced product.
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.
Jones Inc. is a manufacturer that uses traditional costing system to allocate
Horfield Inc. makes four products: Round, Rectangular, Square and Triangle
The costs for Direct Labor, Direct Material and Overhead are as of below:
|
|
Round |
Rectangular |
Square |
Triangle |
|
Units Produced |
800 |
1500 |
800 |
1200 |
|
DM, $ |
100,000 |
200,000 |
150,000 |
250,000 |
|
DL Hour |
10,000 |
30,000 |
40,000 |
20,000 |
|
Avg Cost per DL hour |
$10/ per hour |
|||
|
Overhead Cost |
200% of DL cost |
|
Overhead Cost Driver |
|||
|
Allocation Base |
Total Cost |
Cost Driver |
Quantity |
|
|
300,000 |
Machine Hour |
3,000 |
|
Setup |
700,000 |
Setup Hour |
1,000 |
|
Rent |
1,000,000 |
Square Feet |
100,000 |
|
Resource used by Products |
||||
|
Cost Driver |
Round |
Rectangular |
Square |
Triangle |
|
Machine Hour |
500 |
900 |
400 |
1,200 |
|
Setup Hour |
200 |
300 |
100 |
400 |
|
Square Feet |
20,000 |
30,000 |
10,000 |
40,000 |
Requirement:
- Compute the following: a) overhead cost b)total product cost c) unit product cost
Using both traditional method and ABC method.
2.Which products were incorrectly priced using traditional method? What difficulties might result from incorrectly priced product.
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