produces two types of glass shelving: rounded edge and squared edge. The company reports the following cost data. Rounded Edge Squared Edge Total Direct materials $ 31,200 $ 43,200 $ 74,400 Direct labor 10,400 28,800 39,200 Overhead (using plantwide rate) 37,800 73,400 111,200 Total product cost $ 79,400 $ 145,400 $ 224,800 Units produced 10,400
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.
Northwest Company produces two types of glass shelving: rounded edge and squared edge. The company reports the following cost data.
| Rounded Edge | Squared Edge | Total | |
|---|---|---|---|
| Direct materials | $ 31,200 | $ 43,200 | $ 74,400 |
| Direct labor | 10,400 | 28,800 | 39,200 |
| 37,800 | 73,400 | 111,200 | |
| Total product cost | $ 79,400 | $ 145,400 | $ 224,800 |
| Units produced | 10,400 | 14,400 | |
| Product cost per unit | $ 7.63 | $ 10.10 |
Northwest’s controller wants to apply activity-based costing to allocate the $111,200 of overhead cost to the two products to see whether product cost per unit would change markedly from that above. The company’s budgeted activity usage equals its actual activity usage for the period. The following additional information is collected.
| Activity | Budgeted Cost | Activity Cost Driver | Activity Usage | |||||
|---|---|---|---|---|---|---|---|---|
| Rounded Edge | Squared Edge | Total | ||||||
| Purchasing | $ 5,600 | Purchase orders | 119 | orders | 441 | orders | 560 | orders |
| 58,200 | Machine hours | 500 | hours | 1,500 | hours | 2,000 | hours | |
| Setup | 47,400 | Setups | 40 | setups | 210 | setups | 250 | setups |
| Total | $ 111,200 |
Required:
1. Compute the activity rate for each activity using activity-based costing.
2. Compute overhead cost per unit for each of the two products using activity-based costing.
3. Determine product cost per unit for each of the two products using activity-based costing.
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