Required: 1. Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.) Answer is complete but not entirely correct. Overhead Assigned Home Model: 75,114 Work Model: 121,338 Total Overhead Cost 2$ 196,452 2. Calculate the production cost per unit for each of Harbour's products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Answer is complete but not entirely correct. Home Work Unit Cost 164.86 408.35 3. Calculate Harbour's gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Answer is complete but not entirely correct. Home Work Gross Margin 2$ 193.14 X 160.66
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.
Harbour Company makes two models of electronic tablets, the Home and the Work. Basic production information follows:
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Home |
Work |
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Direct materials cost per unit |
$38 |
$69 |
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Direct labor cost per unit |
$18 |
$36 |
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Sales price per unit |
$358 |
$569 |
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Expected production per month |
690 units |
400 units |
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Harbour has monthly overhead of $196,480, which is divided into the following cost pools:
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Setup costs |
$ |
89,440 |
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Quality control |
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66,240 |
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Maintenance |
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40,800 |
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Total |
$ |
196,480 |
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The company has also compiled the following information about the chosen cost drivers:
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Home |
Work |
Total |
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Number of setups |
38 |
66 |
104 |
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Number of inspections |
330 |
390 |
720 |
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Number of machine hours |
1,300 |
2,100 |
3,400 |
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2.
Required:
Suppose Harbour uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)
Overhead Assigned to Home Model:
Overhead Assigned to Work Model:
Total Overhead Cost:
Calculate the production cost per unit for each of Harbour’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
Home Unit Cost:
Work Unit Cost:
Calculate Harbour’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
Home Gross Margin:
Work Gross Margin:
Select the appropriate cost driver for each cost pool and calculate the activity rates if Harbour wanted to implement an ABC system.
Activity Rate for Setup Costs with ABC system:
Activity Rate for Quality Control with ABC system:
Activity Rate for Maintenance with ABC system:
Assuming an ABC system, assign overhead costs to each product based on activity demands.
Overhead Assigned to Home for Setup Costs:
Overhead Assigned to Home for Quality Control:
Overhead Assigned to Home for Maintenance:
Total Overhead Cost for Home:
Overhead Assigned to Work for Setup Costs:
Overhead Assigned to Work for Quality Control:
Overhead Assigned to Work for Maintenance:
Total Overhead Cost for Work:
Calculate the production cost per unit for each of Harbour’s products in an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)
Home Unit Cost:
Work Unit Cost:
Calculate Harbour’s gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)
Home Gross Margin:
Work Gross Margin:
Compare the gross margin of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)
Home Gross Margin under the Traditional System:
Home Gross Margin under the ABC System:
Work Gross Margin under the Traditional System:
Work Gross Margin under the ABC System:
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Amount of overhead assignment to each product line
Determine the overhead rate based on machine hours as cost driver
Manufacturing
Number of machine hour available are 3,400
Overhead rate based on machine hour===Total manufacturing overhaedsMachine hours$196,4803,40057.78Overhead rate based on machine hour=Total manufacturing overhaedsMachine hours=$196,4803,400=57.78
Assignment of overhead to each product line
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Particular |
Home model |
Work model |
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Number of machine hour used |
1,300 |
2,100 |
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Overhead rate |
$57.78 |
$57.78 |
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Total overheads assigned |
$75,114 |
$121,338 |
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Particular |
Overhead assigned |
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Home model |
75,114 |
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Work model |
121,338 |
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Total overhead cost |
196,452 |
Calculate the production cost per unit for each of Harbour’s product
|
Particular |
Home model |
Work model |
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Direct material |
38 |
69 |
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Direct labour |
18 |
36 |
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Manufacturing overhead |
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-home model (75,114/690) |
$108.86 |
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-work model (121,338/400) |
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$303.345 |
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Total production cost per unit |
$164.86 |
$408.345 |
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Home |
Work |
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Unit cost |
$164.86 |
$408.345 |
Calculate Harbour’s gross margin per unit for each product
|
Particular |
Home model |
Work model |
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Sale price per unit |
$358 |
$569 |
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Less: Production cost per unit |
$164.86 |
$408.345 |
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Gross margin per unit |
193.14 |
160.655 |
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Home model |
Work model |
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Gross Margin |
$193.14 |
$160.655 |
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