Sara’s Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family Style for home use. Salsa is prepared in department 1 and packaged in department 2. The activities, overhead costs, and drivers associated with these two manufacturing processes and the company’s production support activities follow. Process Activity Overhead cost Driver Quantity Department 1 Mixing $ 5,800 Machine hours 2,200 Cooking 12,900 Machine hours 2,200 Product testing 113,800 Batches 1,000 $ 132,500 Department 2 Machine calibration $ 315,000 Production runs 500 Labeling 20,000 Cases of output 145,000 Defects 9,000 Cases of output 145,000 $ 344,000 Support Recipe formulation $ 82,000 Focus groups 40 Heat, lights, and water 33,000 Machine hours 2,200 Materials handling 78,000 Container types 8 $ 193,000 Additional production information about its two product lines follows. Extra Fine Family Style Units produced 33,000 cases 112,000 cases Batches 330 batches 670 batches Machine hours 900 MH 1,300 MH Focus groups 30 groups 10 groups Container types 6 containers 2 containers Production runs 240 runs 260 runs 4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $9 per case of Extra Fine and $8 per case of Family Style.
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.
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Problem 04-5A Pricing analysis with ABC and a plantwide overhead rate LO A1, A2, P1, P3
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Sara’s Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family Style for home use. Salsa is prepared in department 1 and packaged in department 2. The activities, overhead costs, and drivers associated with these two manufacturing processes and the company’s production support activities follow.
| Process | Activity | Overhead cost | Driver | Quantity | ||
| Department 1 | Mixing | $ | 5,800 | Machine hours | 2,200 | |
| Cooking | 12,900 | Machine hours | 2,200 | |||
| Product testing | 113,800 | Batches | 1,000 | |||
| $ | 132,500 | |||||
| Department 2 | Machine calibration | $ | 315,000 | Production runs | 500 | |
| Labeling | 20,000 | Cases of output | 145,000 | |||
| Defects | 9,000 | Cases of output | 145,000 | |||
| $ | 344,000 | |||||
| Support | Recipe formulation | $ | 82,000 | Focus groups | 40 | |
| Heat, lights, and water | 33,000 | Machine hours | 2,200 | |||
| Materials handling | 78,000 | Container types | 8 | |||
| $ | 193,000 | |||||
Additional production information about its two product lines follows.
| Extra Fine | Family Style | |||
| Units produced | 33,000 | cases | 112,000 | cases |
| Batches | 330 | batches | 670 | batches |
| Machine hours | 900 | MH | 1,300 | MH |
| Focus groups | 30 | groups | 10 | groups |
| Container types | 6 | containers | 2 | containers |
| Production runs | 240 | runs | 260 | runs |
4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $9 per case of Extra Fine and $8 per case of Family Style.
Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs based on machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are demanding the activities.
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