Marigold has budgeted overhead costs of $973,350. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 463,500 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the cutting cost pool is $370,800 and $602,550 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool Cotton Total Machine hours 103,000 103,000 206,000 Number of setups 1,030 515 1,545 1. Calculate the following. a.) The overhead rate using activity based costing. (Round answers to 2 decimal places, e.g. 12.25.) Cutting $ ___ per machine hour Design $ ___ per set up b.) Amount of overhead allocated to the wool product line and the cotton product line using activity-based costing. Wool product line Cotton product line Overhead Allocated $ $ c.) Overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.)
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.
Marigold has budgeted
| Wool | Cotton | Total | |
| Machine hours | 103,000 | 103,000 | 206,000 |
| Number of setups | 1,030 | 515 | 1,545 |
1. Calculate the following.
a.) The overhead rate using activity based costing. (Round answers to 2 decimal places, e.g. 12.25.)
Cutting $ ___ per machine hour
Design $ ___ per set up
b.) Amount of overhead allocated to the wool product line and the cotton product line using activity-based costing.
| Wool product line | Cotton product line | |
| Overhead Allocated | $ | $ |
c.) Overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.)
d.) What amount of overhead would be allocated to the wool and cotton product lines using the traditional approach, assuming direct labor hours were incurred evenly between the wool and cotton?
| Wool product line | Cotton product line | |
| Overhead Allocated | $ | $ |
Introduction:-
The following are two common ways a company can allocate overhead as follows under:-
- Traditional costing system
- Activity-based costing (ABC) system.
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