Nicholas Company produces two products: Product A and Product B. The company is budgeted to produce 4,000 units of each product during the year. The total factory overhead for the year is budgeted at $100,000. Each unit requires 0.5 direct labor hour to produce. 1. Determine (a) the total number of budgeted direct labor hours budgeted for the year, (b) the single plant-wide factory overhead rate, and (c) the factory overhead rate per unit for each product using the single plantwide factory overhead rate. Assume Nicholas Company instead uses activity-based costing for overhead allocation for Products A and B. Budgeted production is 4,000 units each. Total budgeted factory overhead is $100,000, divided into four activities: fabrication, $30,000; set-up, $20,000; assembly, $40,000; and inspection, $10,000. The activity-based usage quantities for each product by each activity is as follows: Product ABTotal Fabrication (DL hrs)2,2003,8006,000 Set-ups(#)2,0003,0005,000 Assembly (DL hrs)1,8003,2005,000 Inspections (#)1,200 8002,000 1. Determine (a) the activity rate for each activity and (b) the activity-based factory overhead per unit for each product. Evaluate the results of the two methods (single plantwide rate vs. ABC). Which method is more precise? In the real world, what could be a negative result from applying the single plantwide rate to decision making? Ignoring direct materials and direct labor costs, what if you were to set the selling price of both products using the single plantwide rate at $2 above the factory overhead cost. What would you expect to see in terms of sales volume of each product?
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.
Nicholas Company produces two products: Product A and Product B. The company is budgeted to produce 4,000 units of each product during the year. The total factory
Assume Nicholas Company instead uses activity-based costing for overhead allocation for Products A and B. Budgeted production is 4,000 units each. Total budgeted factory overhead is $100,000, divided into four activities: fabrication, $30,000; set-up, $20,000; assembly, $40,000; and inspection, $10,000. The activity-based usage quantities for each product by each activity is as follows:
Product
ABTotal
Fabrication (DL hrs)2,2003,8006,000
Set-ups(#)2,0003,0005,000
Assembly (DL hrs)1,8003,2005,000
Inspections (#)1,200 8002,000
Evaluate the results of the two methods (single plantwide rate vs. ABC). Which method is more precise? In the real world, what could be a negative result from applying the single plantwide rate to decision making? Ignoring direct materials and direct labor costs, what if you were to set the selling price of both products using the single plantwide rate at $2 above the
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