LO P1, P2 Laval produces lighting fixtures. Budgeted information for its two production departments follows. The departments use machine hours (MH) and direct labor hours (DLH). Fabricating Assembly Overhead cost $ 1,000,000 $ 384,000 Direct labor hours 125,000 DLH 48,000 DLH 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.
Exercise 17-9 (Algo) Allocating overhead using plantwide rate and departmental rates LO P1, P2
| Fabricating | Assembly | |||
|---|---|---|---|---|
| Overhead cost | $ 1,000,000 | $ 384,000 | ||
| Direct labor hours | 125,000 | DLH | 48,000 | DLH |
| Machine hours | 100,000 | MH | 82,500 | MH |
Laval reports the following for one of its products, a desk lamp.
| Number of Units | Fabricating Department | Assembly Department | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Direct Labor Hours per Unit | Machine Hours per Unit | Direct Labor Hours per Unit | Machine Hours per Unit | ||||||
| Desk lamp | 5,000 | 4 | DLH per unit | 2 | MH per unit | 1 | DLH per unit | 0.4 | MH per unit |
Required:
1. Determine the plantwide overhead rate using 173,000 direct labor hours as the allocation base.
2. Determine the overhead cost per unit for the desk lamp using the plantwide overhead rate.
3. Compute departmental overhead rates based on machine hours in the Fabricating department and direct labor hours in the Assembly department.
4. Determine the overhead cost per unit for the desk lamp using the departmental overhead rates.
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