Kulka Corporation manufactures two products: Product F82D and Product T05P. The company uses a plantwide overhead rate based on direct labor hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products F82D and T05P. Activity Cost Pool Activity Measure Total Cost Total Activity Machining.......................... Machine-hours $180,000 9,000 MHs Machine setups.................. Number of setups $125,000 250 setups Product design.................. Number of products $44,000 2 products General factory.................. Direct labor-hours $260,000 10,000 DLHs Activity Measure Product F82D Product T05P Machine-hours................. 5,000 4,000 Number of setups........... 160 90 Number of products........ 1 1 Direct labor-hours............ 4,000 6,000 Using the ABC system, how much total manufacturing overhead cost would be assigned to Product T05P? A) $156,000 B) $303,000 C) $147,000 D) $304,500 The answer given was (B), but why it is not (C)? Why the direct-labor hours is included in the manufacturing overhead? In my understanding that "indirect labor hours" should be included when calculating manufacturing overhead. Please explain the answer thoroughly.
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.
Kulka Corporation manufactures two products: Product F82D and Product T05P. The company uses a plantwide
|
|
Activity Cost Pool |
Activity Measure |
Total Cost |
Total Activity |
|
|
|
Machining.......................... |
Machine-hours |
$180,000 |
9,000 |
MHs |
|
|
Machine setups.................. |
Number of setups |
$125,000 |
250 |
setups |
|
|
Product design.................. |
Number of products |
$44,000 |
2 |
products |
|
|
General factory.................. |
Direct labor-hours |
$260,000 |
10,000 |
DLHs |
|
|
Activity Measure |
Product F82D |
Product T05P |
|
|
Machine-hours................. |
5,000 |
4,000 |
|
|
Number of setups........... |
160 |
90 |
|
|
Number of products........ |
1 |
1 |
|
|
Direct labor-hours............ |
4,000 |
6,000 |
Using the ABC system, how much total
- A) $156,000
- B) $303,000
- C) $147,000
- D) $304,500
The answer given was (B), but why it is not (C)? Why the direct-labor hours is included in the manufacturing overhead? In my understanding that "indirect labor hours" should be included when calculating manufacturing overhead. Please explain the answer thoroughly.
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