Southeastern Paper Company manufactures three products (computer paper, newsprint, and specialty paper) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Activity Costs Production $220,000 Setup 117,000 Moving 21,000 Shipping 105,000 Product engineering 102,000 Total $565,000 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Moving Number of moves Shipping Number of customer orders Product engineering Number of test runs The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Machine Hours Number of Setups Number of Moves Number of Customer Orders Number of Test Runs Units Computer paper 400 80 230 310 50 1,000 Newsprint 500 30 70 140 15 1,250 Specialty paper 200 150 300 550 105 500 Total 1,100 260 600 1,000 170 2,750 Each product requires 0.4 machine hour per unit. Required: 1. Determine the activity rate for each activity. Activity Rate Production $fill in the blank 1 /mh Setup $fill in the blank 2 /setup Moving $fill in the blank 3 /move Shipping $fill in the blank 4 /cust. ord. Product Engineering $fill in the blank 5 /test run 2. Determine the total and per-unit activity cost for all three products. Round "Activity cost per unit" answers to two decimal places. Computer Paper Newsprint Specialty Paper Total activity cost $fill in the blank 6 $fill in the blank 7 $fill in the blank 8 Activity cost per unit $fill in the blank 9 $fill in the blank 10 $fill in the blank 11
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
Southeastern Paper Company manufactures three products (computer paper, newsprint, and specialty paper) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:
| Activity | Activity Costs | ||
| Production | $220,000 | ||
| Setup | 117,000 | ||
| Moving | 21,000 | ||
| Shipping | 105,000 | ||
| Product engineering | 102,000 | ||
| Total | $565,000 |
The activity bases identified for each activity are as follows:
| Activity | Activity Base | |
| Production | Machine hours | |
| Setup | Number of setups | |
| Moving | Number of moves | |
| Shipping | Number of customer orders | |
| Product engineering | Number of test runs |
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
| Machine Hours |
Number of Setups |
Number of Moves |
Number of Customer Orders |
Number of Test Runs |
Units | |||||||
| Computer paper | 400 | 80 | 230 | 310 | 50 | 1,000 | ||||||
| Newsprint | 500 | 30 | 70 | 140 | 15 | 1,250 | ||||||
| Specialty paper | 200 | 150 | 300 | 550 | 105 | 500 | ||||||
| Total | 1,100 | 260 | 600 | 1,000 | 170 | 2,750 |
Each product requires 0.4 machine hour per unit.
Required:
1. Determine the activity rate for each activity.
| Activity Rate | |
| Production | $fill in the blank 1 /mh |
| Setup | $fill in the blank 2 /setup |
| Moving | $fill in the blank 3 /move |
| Shipping | $fill in the blank 4 /cust. ord. |
| Product Engineering | $fill in the blank 5 /test run |
2. Determine the total and per-unit activity cost for all three products. Round "Activity cost per unit" answers to two decimal places.
| Computer Paper | Newsprint | Specialty Paper | |
| Total activity cost | $fill in the blank 6 | $fill in the blank 7 | $fill in the blank 8 |
| Activity cost per unit | $fill in the blank 9 | $fill in the blank 10 | $fill in the blank 11 |
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