Maizy Industries is a producer of baby products. They manufacture two main products: spit-up rags and blankets. The company currently allocates manufacturing overhead to production at a rate of $5.00 per direct labor hour. In order to gain a better understanding of how its products consume overhead resources, the company is considering using activity-based costing for internal planning and decision-making purposes. Two activities have been identified as generating 80% of the total budgeted manufacturing overhead. Information related to the two activities is as follows: Activity Machine Setup Inspection Cost Pool $100,000 $80,000 Cost Driver Activity Level 305 Setups 1,000 Inspection Hours The remaining overhead is attributable to general factory costs and will continue to be allocated based on direct labor hours. If one of the company's products requires 50 setups, 500 inspection hours, and 10,000 direct labor hours, is the product being overcosted or undercosted by the traditional system and by how much in total?
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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
