Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 55,000 units of EX300 and 12,000 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below: EX300 TX500 Total Direct materials $ 361,325 $ 157,550 $ 518,875 Direct labor $ 115,000 $ 40,000 $ 155,000 The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below: Activity Activity Cost Pool (and Activity Measure) Manufacturing Overhead EX300 TX500 Total Machining (machine-hours) $ 224,750 85,000 60,000 145,000 Setups (setup hours) 105,000 50 250 300 Product-level (number of products) 40,700 1 1 2 General factory (direct labor dollars) 48,050 $ 115,000 $ 40,000 $ 155,000 Total manufacturing overhead cost $ 418,500 Required: 1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system. 1-b. Using the plantwide rate, compute the unit product cost for each product. 2-a. Compute the activity rate for each activity cost pool. 2-b. Using the activity rates, compute the unit product cost for 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.
Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 55,000 units of EX300 and 12,000 units of TX500. The company’s conventional cost system allocates manufacturing
| EX300 | TX500 | Total | |||||||
| Direct materials | $ | 361,325 | $ | 157,550 | $ | 518,875 | |||
| Direct labor | $ | 115,000 | $ | 40,000 | $ | 155,000 | |||
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:
| Activity | ||||||||||||
| Activity Cost Pool (and Activity Measure) |
Manufacturing Overhead |
EX300 | TX500 | Total | ||||||||
| Machining (machine-hours) | $ | 224,750 | 85,000 | 60,000 | 145,000 | |||||||
| Setups (setup hours) | 105,000 | 50 | 250 | 300 | ||||||||
| Product-level (number of products) | 40,700 | 1 | 1 | 2 | ||||||||
| General factory (direct labor dollars) | 48,050 | $ | 115,000 | $ | 40,000 | $ | 155,000 | |||||
| Total |
$ | 418,500 | ||||||||||
Required:
1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system.
1-b. Using the plantwide rate, compute the unit product cost for each product.
2-a. Compute the activity rate for each activity cost pool.
2-b. Using the activity rates, compute the unit product cost for each product.
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