Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,400 units of Basic Product and 1,000 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.4 direct labor hours per unit and Deluxe Product requires 0.8 direct labor hours per unit. The total estimated overhead for next period is $98,835. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows: Estimated Expected Activity Activity Cost Pool Overhead Costs Basic Product Deluxe Product Total Activity 1 $ 30,540 1,100 700 1,800 Activity 2 17,400 1,800 300 2,100 General Factory 50,895 560 800 1,360 Total $ 98,835 (Note: The General Factory costs are allocated on the basis of direct labor hours.) The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to: Multiple Choice $12.43. $8.29. $72.67. $47.06.
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.
TB MC Qu. 9-94 (Algo) Markham Company makes two products:
Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,400 units of Basic Product and 1,000 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:
| Estimated | Expected Activity | |||||||||
| Activity Cost Pool | Overhead Costs | Basic Product | Deluxe Product | Total | ||||||
| Activity 1 | $ | 30,540 | 1,100 | 700 | 1,800 | |||||
| Activity 2 | 17,400 | 1,800 | 300 | 2,100 | ||||||
| General Factory | 50,895 | 560 | 800 | 1,360 | ||||||
| Total | $ | 98,835 | ||||||||
(Note: The General
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
-
$12.43.
-
$8.29.
-
$72.67.
-
$47.06.
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