Midwest Industrial Products Corporation makes two products, Product H and Product L. Product H isexpected to sell 50,000 units next year and Product L is expected to sell 10,000 units. A unit of either product requires 0.2 direct labor-hours.The company’s total manufacturing overhead for the year is expected to be $1,920,000.Required:1. The company currently applies manufacturing overhead to products using direct labor-hours asthe allocation base. If this method is followed, how much overhead cost would be applied to eachproduct? Compute both the overhead cost per unit and the total amount of overhead cost that wouldbe applied to each product. (In other words, how much overhead cost is applied to a unit of ProductH? Product L? How much overhead cost is applied in total to all the units of Product H? Product L?)2. Management is considering an activity-based costing system and would like to know what impact thischange might have on product costs. For purposes of discussion, it has been suggested that all of themanufacturing overhead be treated as a product-level cost. The total manufacturing overhead wouldbe divided in half between the two products, with $960,000 assigned to Product H and $960,000assigned to Product L.If this suggestion is followed, how much overhead cost per unit would be applied to each product?3. Explain the impact on unit product costs of the switch in costing systems.
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.
Midwest Industrial Products Corporation makes two products, Product H and Product L. Product H is
expected to sell 50,000 units next year and Product L is expected to sell 10,000 units. A unit of either product requires 0.2 direct labor-hours.
The company’s total manufacturing
Required:
1. The company currently applies manufacturing overhead to products using direct labor-hours as
the allocation base. If this method is followed, how much overhead cost would be applied to each
product? Compute both the overhead cost per unit and the total amount of overhead cost that would
be applied to each product. (In other words, how much overhead cost is applied to a unit of Product
H? Product L? How much overhead cost is applied in total to all the units of Product H? Product L?)
2. Management is considering an activity-based costing system and would like to know what impact this
change might have on product costs. For purposes of discussion, it has been suggested that all of the
manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would
be divided in half between the two products, with $960,000 assigned to Product H and $960,000
assigned to Product L.
If this suggestion is followed, how much overhead cost per unit would be applied to each product?
3. Explain the impact on unit product costs of the switch in costing systems.
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