Required: 1. Answer the following questions: a. Calculate the activity consumption ratios for Scented cards (round to two decimal places). Setups: Moving materials: Machining: Inspection: X percent of the total overhead. Upon comparing this overhead assignment with the If only one rate based on direct labor hours were used to assign overhead, Scented Cards would receive about b. activity consumption ratios calculated in part a, it is clear that a plantwide rate would x the activity-based cost assignments. 2. Calculate the four activity rates (round to the nearest cent). significantly understate Setups: X per setup significantly overstate Moving materials: X per move approximately match Machining: X per machine hour Inspection: X per inspection hour 3. Calculate the total unit costs using activity rates to assign overhead (round to the nearest cent). Scented: Regular:
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.
Activity-Based Costing
Both plantwide and departmental rates rely on unit-level drivers to assign
A direct method of overcoming the distortions caused by unit-level rates when product diversity exists (assuming non-unit level overhead is significant) is to expand the number of rates used so that the rates reflect the actual consumption of overhead costs by the various products. Instead of pooling the overhead costs in a plant or departmental pools, rates are calculated for each individual overhead activity. The activity rates are based on causal factors that measure consumption. Costs are assigned to each product by multiplying the activity rates by the amount consumed of each activity, as measured by the activity driver.
Activity costs can also be assigned using consumption ratios. Consumption ratios reflect the proportion of an activity consumed by the individual products. If the activity consumption ratios are approximately equal to the direct labor consumption ratio, then this would indicate that there is (SIGNIFICANT PRODUCT DIVERSITY/ LITTLE PRODUCT DIVERSITY).
A direct method of overcoming the distortions caused by unit-level rates when product diversity exists (assuming non-unit level overhead is significant) is to expand the number of rates used so that the rates reflect the actual consumption of overhead costs by the various products. Instead of pooling the overhead costs in a plant or departmental pools, rates are calculated for each individual overhead activity. The activity rates are based on causal factors that measure consumption. Costs are assigned to each product by multiplying the activity rates by the amount consumed of each activity, as measured by the activity driver.
Activity costs can also be assigned using consumption ratios. Consumption ratios reflect the proportion of an activity consumed by the individual products. If the activity consumption ratios are approximately equal to the direct labor consumption ratio, then this would indicate that there is (SIGNIFICANT PRODUCT DIVERSITY/ LITTLE PRODUCT DIVERSITY). This (WELL/ POORLY) and that there is (NO NEED/ A STRONG NEED) for activity rates. The total of all assigned activity costs is the amount of overhead consumed by-products. Because the assignment uses causal factors, it tends to be ( RELATIVELY MORE/ RELATIVELY LESS)
accurate than assignments using only unit-level drivers.
Apply the Concepts
Scenario IV: Goodmark Company produces two types of birthday cards: scented and regular. Expected product data for the coming year are given below. Overhead costs are identified by activity.
| Scented Cards | Regular Cards | Total | |
| Units produced | 20,000 | 200,000 | - |
| Prime costs | $160,000 | $1,500,000 | $1,660,000 |
| Direct labor hours | 20,000 | 160,000 | 180,000 |
| Number of setups | 60 | 40 | 100 |
| Machine hours | 10,000 | 80,000 | 90,000 |
| Inspection hours | 2,000 | 16,000 | 18,000 |
| Number of moves | 180 | 120 | 300 |
Overhead costs:
| Setting up equipment | $240,000 |
| Moving materials | 120,000 |
| Machining | 200,000 |
| Inspecting products | 160,000 |
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