system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so AP’s controller Devon Smith realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information. Compute the manufacturing ov
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.
Automotive Products (AP) designs and
produces automotive parts. In 2014, actual variable manufacturing
costing system allocates variable manufacturing overhead to its three customers based on machine-hours
and prices its contracts based on full costs. One of its customers has regularly complained of being charged
noncompetitive prices, so AP’s controller Devon Smith realizes that it is time to examine the consumption of
overhead resources more closely. He knows that there are three main departments that consume overhead
resources: design, production, and engineering. Interviews with the department personnel and examination
of time records yield the following detailed information.
Compute the manufacturing overhead allocated to each customer in 2014 using the simple costing
system that uses machine-hours as the allocation base.
2. Compute the manufacturing overhead allocated to each customer in 2014 using department-based
manufacturing overhead rates.
3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining
about being overcharged in the simple system? If the new department-based rates are used to price
contracts, which customer(s) will be unhappy? How would you respond to these concerns?
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