Required: (a) Calculate the total cost of each product using the traditional method (overheads are absorbed on a machine hour basis) and Activity Based Costing (ABC).
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.
![Question 2
Wexxon Ple currently makes four products for sale on the local market. Details of the four products
and relevant information are given below for one period:
Product
Output in units
Cost per unit:
Direct material
$40
Direct labour
$28
Machine hours (per unit) 4
Axxon
120
Machine Department costs
Set up costs
Stores receiving costs
Inspection/ Quality control
Material Handling and Dispatch
COST
Set up cost
Stores receiving
Beach
100
Inspection/ Quality Control
Material handling and dispatch
$50
$21
3
Capal
80
The four products are similar and are usually produced in production runs of 20 units and sold in
batches of 10 units. The production overhead is currently absorbed by using a machine hour rate,
and the total of the production overhead for the period has been analyzed as follows:
$30
$14
2
S
10,430
5,250
3,600
2,100
4,620
Delta
120
You have ascertained that the cost drivers to be used are as listed below for the overhead costs
shown:
$60
$21
3
COST DRIVER
Number of production runs
Requisition raised
Number of production runs
Orders executed
The number of requisitions raised on the stores was 20 for each product and the number of orders
executed was 42, each order being for a batch of 10 for the products.
Required:
(a) Calculate the total cost of each product using the traditional method (overheads are
absorbed on a machine hour basis) and Activity Based Costing (ABC).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb90a0d8b-4bb0-4aaa-b28b-baf92607777f%2F5fbbde96-905d-4daf-a970-ccad76221b7c%2Foq8vllq_processed.jpeg&w=3840&q=75)
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