London Food Processing corporation (LFP. Ltd) manufactures two products: A and B. A review of the company's accounting records revealed the following per unit costs and production volumes: A B Production volume (units) 2,500 5,000 Direct material £ 40 £ 50 Direct labor: 2 hours at £15 30 3 hours at £15 45 Manufacturing overhead: 2 hours at £90 1803 hours at £90 270 Manufacturing overhead is currently computed by spreading overhead of £1,800,000 over 20,000 direct labor hours. Management is considering a shift to activity-based costing in an effort to improve the firm's accounting procedures, and the following data are available: Cost Driver Volume Cost Pool Cost Cost Driver A B Total Setups £ 240,000 Number of setups 100 20 120 General factory 1,500,000 Direct labor hours 5,000 15,000 20,000 Machine processing 60,000 Machine hours 2,200 800 3,000 £1,800,000 LFP. Ltd determines selling prices by adding 30% to a product's total cost. Required: a) Compute the per-unit cost and selling price of product B by using LFP. Ltd.'s current costing procedures b) Compute the per-unit cost and selling price of product B under activity-based costing
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.
London Food Processing corporation (LFP. Ltd)
manufactures two products: A and B. A review of the
company's accounting records revealed the following per unit costs and production volumes:
A B
Production volume (units) 2,500 5,000
Direct material £ 40 £ 50
Direct labor:
2 hours at £15 30
3 hours at £15 45
Manufacturing
2 hours at £90 180
3 hours at £90 270
Manufacturing overhead is currently computed by spreading
overhead of £1,800,000 over 20,000 direct labor hours.
Management is considering a shift to activity-based costing in
an effort to improve the firm's accounting procedures, and the
following data are available:
Cost Driver Volume
Cost Pool Cost Cost Driver A B Total
Setups £ 240,000 Number of setups 100 20 120
General factory 1,500,000 Direct labor hours 5,000 15,000 20,000
Machine
processing
60,000 Machine hours 2,200 800 3,000
£1,800,000
LFP. Ltd determines selling prices by adding 30% to a
product's total cost.
Required:
a) Compute the per-unit cost and selling price of product B by
using LFP. Ltd.'s current costing procedures
b) Compute the per-unit cost and selling price of product B
under activity-based costing
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