Star Wars Corporation has identified the following overhead activities, costs, and activity drivers for the coming year. Activity Setup Inspecting Grinding Excepted Cost $180,000 $90,000 $630,000 Activity Driver Number setups Inspection hours Machine hours Direct Material Direct Labor Units Completed Number of setups Inspection hours Machine hours The company produces two different types of Starfighter aircrafts to be used by the Galactic Republic. Information regarding the production of each type is as follows: Aircraft A Activity Capacity 75 6,000 18,000 $850,000 $200,000 1,000 35 2,000 13,000 Aircraft B $950,000 $200,000 500 40 4,000 5,000 The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B uses 3,000 of D/L hrs. a) Determine the unit cost for each product using direct labor hours to apply overhead. b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers. c) Determine the OH cost per unit and cost per unit using the three activity drivers. d) Which method produces the more accurate cost assignment? Why? Where did the costs shift per unit using the ABC method and what drove this? |
Star Wars Corporation has identified the following overhead activities, costs, and activity drivers for the coming year. Activity Setup Inspecting Grinding Excepted Cost $180,000 $90,000 $630,000 Activity Driver Number setups Inspection hours Machine hours Direct Material Direct Labor Units Completed Number of setups Inspection hours Machine hours The company produces two different types of Starfighter aircrafts to be used by the Galactic Republic. Information regarding the production of each type is as follows: Aircraft A Activity Capacity 75 6,000 18,000 $850,000 $200,000 1,000 35 2,000 13,000 Aircraft B $950,000 $200,000 500 40 4,000 5,000 The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B uses 3,000 of D/L hrs. a) Determine the unit cost for each product using direct labor hours to apply overhead. b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers. c) Determine the OH cost per unit and cost per unit using the three activity drivers. d) Which method produces the more accurate cost assignment? Why? Where did the costs shift per unit using the ABC method and what drove this? |
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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Question
Transcribed Image Text:Star Wars Corporation has identified the following overhead activities, costs, and activity drivers
for the coming year.
Activity
Setup
Inspecting
Grinding
Excepted Cost
$180,000
$90,000
$630,000
Direct Material
Direct Labor
Units Completed
Activity Driver
Number setups
Inspection hours
Machine hours
Number of setups
Inspection hours
Machine hours
The company produces two different types of Starfighter aircrafts to be used by the Galactic
Republic. Information regarding the production of each type is as follows:
Aircraft A
Activity Capacity
$850,000
$200,000
1,000
35
2,000
13,000
75
6,000
18,000
Aircraft B
$950,000
$200,000
500
40
4,000
5,000
The company's normal activity is estimated at 6,000 direct labor hours. Each batch uses
approximately 3,000 hours of direct labor. 1,000 units of A uses 3,000 D/L hrs and 500 units of B
uses 3,000 of D/L hrs.
a) Determine the unit cost for each product using direct labor hours to apply overhead.
b) Determine total overhead cost (for Aircrafts A & B) using the three activity drivers.
c) Determine the OH cost per unit and cost per unit using the three activity drivers.
d) Which method produces the more accurate cost assignment? Why? Where did the
costs shift per unit using the ABC method and what drove this? |
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