Kingston Industries manufactures two types of computerized scoreboards, custom and standard, each of which involves three manufacturing processes, namely: cutting, assembly and packaging. The company uses an activity-based costing system to allocate its overhead cost to the manufacturing processes. In using the activity-based costing system, the company uses four overhead activities; production set-up, procurement, quality control and materials management, in each production department. An activity analysis of the overhead related to the cutting department revealed the following estimated costs and activity bases for the four overhead activities: Activity Costs Activity Base $ Production set-up 43 200 Number of set-ups Procurement 156 000 Number of purchase orders Quality control 175 000 Number of ins
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.
Kingston Industries manufactures two types of computerized scoreboards, custom and standard,
each of which involves three manufacturing processes, namely: cutting, assembly and packaging.
The company uses an activity-based costing system to allocate its
manufacturing processes.
In using the activity-based costing system, the company uses four overhead activities; production
set-up, procurement, quality control and materials management, in each production department.
An activity analysis of the overhead related to the cutting department revealed the following
estimated costs and activity bases for the four overhead activities:
Activity Costs Activity Base
$
Production set-up 43 200 Number of set-ups
Procurement 156 000 Number of purchase orders
Quality control 175 000 Number of inspections
Materials management 150 000 Number of components
Total 524 200
The activity based usage quantities for each product in the cutting department are as follows:
Set-ups PurchaseOrders Inspections Components Unit Volume
Custom 400 1000 2000 300 5000
Standard 80 200 500 100 5000
Total 480 1200 2500 400 10000
(i) Determine an activity rate for each activity.
(ii) Calculate the total overhead cost assigned to each product in the cutting department
using the rates computed in part (i).
(iii) Determine the unit activity (overhead) cost for each product in the cutting
department.
(iv) Identify TWO other methods of costing manufactured goods.
(v) Explain, highlighting ONE distinct point why ABC is considered to be a more
accurate method of costing.
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