Nisan is making over 45,000 cars per year and decided to manufacture and sell three comparable cars called A Car, B Car and C Car. All products are priced by adding a 25% mark-up on cost to obtain the selling price. The management has the following information about their products: Applicable to its products: Total Overheads £572,000.00 Total machine Hours 8,800 After interviewing all the important people, the management have apportioned the overhead costs as per below: Description A Car B Car C Car Units of Production 5000 2000 600 Material Cost p/unit £25 £70 125 Labour Cost per Unit £7 £20 50 Machine Hrs /Unit 0.5 1.5 5.5 Overhead allocation % Overheads Set up Costs 60 Inspections 30 Materials Handling 10 Cost pools A Car B Car C Car Set ups 35 70 100 Inspections 10 23 40 Goods Movements 15 23 33 A) Calculate the Absorption Costing and ABC costing
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.
Nisan is making over 45,000 cars per year and decided to manufacture and sell three comparable cars called A Car, B Car and C Car. All products are priced by adding a 25% mark-up on cost to obtain the selling price.
|
The management has the following information about their products: |
|
|
Applicable to its products: |
|
|
Total |
£572,000.00 |
|
Total machine Hours |
8,800 |
After interviewing all the important people, the management have apportioned the overhead costs as per below:
|
Description |
A Car |
B Car |
C Car |
|
Units of Production |
5000 |
2000 |
600 |
|
Material Cost p/unit |
£25 |
£70 |
125 |
|
Labour Cost per Unit |
£7 |
£20 |
50 |
|
Machine Hrs /Unit |
0.5 |
1.5 |
5.5 |
|
Overhead allocation |
|
|
|
% Overheads |
|
Set up Costs |
60 |
|
Inspections |
30 |
|
Materials Handling |
10 |
|
Cost pools |
||||||
|
A Car |
B Car |
C Car |
|
|||
|
|
||||||
|
Set ups |
35 |
70 |
100 |
|
||
|
Inspections |
10 |
23 |
40 |
|
||
|
Goods Movements |
15 |
23 |
33 |
|
A) Calculate the Absorption Costing and ABC costing
Step by step
Solved in 3 steps
