Majan Plastic Industries produces two categories of products: Plastic Products and Rubber Products. They are deciding whether to use Traditional costing or activity based costing. Based on next year's budget, two cost pools have been developed with the following information: Plastic Products Rubber Products OH Direct Labour 10000 5000 Machine Hours 6500 3500 500000 machine setup 2000 3000 100000 Required: a) Compute the plant-wide overhead rate if overhead is applied based on direct labor hours. b) Compute the overhead rates using activity based costing. c) Determine the difference in the amount of overhead allocated to each product between the two methods.
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.
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