Required 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine hours. 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. 3. Explain why Shirley's Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process.
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.
![Required
1. Compute the total overhead allocated to each job under a simple costing system, where
overhead is allocated based on machine hours.
2. Compute the total overhead allocated to each job under an activity-based costing system
using the appropriate activity drivers.
3. Explain why Shirley's Custom Framing might favor the ABC job-costing system over the
simple job-costing system, especially in its bidding process.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Facc636b4-c810-484a-bf47-001a6f3a3c9e%2F29a521e7-e9fe-465f-ac24-8550aaf611f3%2Ftxxr2bi_processed.png&w=3840&q=75)
![ACTIVITY-BASED COSTING.
The job-costing system at Shirley's Custom Framing has five indirect-cost pools (purchasing, material
handling, machine maintenance, product inspection, and packaging). The company is in the process of
bidding on two jobs: Job 215, an order of 16 intricate personalized frames, and Job 325, an order of six
standard personalized frames. The controller wants you to compare overhead allocated under the
current simple job-costing system and a newly designed activity-based job-costing system. The total
budgeted costs in each indirect-cost pool and the budgeted quantity of each activity driver are as
follows.
Purchasing
Material handling
Machine maintenance
Product inspection
Packaging
Budgeted Overhead
$ 25,600
32,900
150,000
11,200
12,400
$232,100
Number of purchase orders
Number of material moves
Machine-hours
Activity Driver
Purchase orders processed
Material moves
Number of inspections
Units produced
Machine-hours
Inspections
Units produced
Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses
more types of materials that need to be purchased, moved, and inspected relative to Job 325.
Job 215
26
14
20
12
16
Job 325
5
3
80
10
5
Budgeted Quantity of
Activity Driver
6
1,600
4,700
10,000
1,600
3,100](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Facc636b4-c810-484a-bf47-001a6f3a3c9e%2F29a521e7-e9fe-465f-ac24-8550aaf611f3%2Fgm1vyq_processed.png&w=3840&q=75)
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