The Fleming Company of Anguilla (FCA) designs and produces automotive parts. In 2019, actual variable manufacturing overhead is $280,000. FCA’s simple 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 FCA’s controller Matthias Hodge 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: Department Cost Driver Manufacturing Overhead in 2019 Usage of Cost of Drivers by Customer Contract Gumbs Motors Connor Motors Richardson Auto Design CAD design hours $ 35,000 150 250 100 Production Engineering hours 25,000 130 100 270 Engineering Machine hours 220,000 300 3,700 1,000 Total $280,000 Required i. Compute the manufacturing overhead allocated to each customer in 2019 using the simple costing system that uses machine-hours as the allocation base. ii. Compute the manufacturing overhead allocated to each customer in 2019 using department-based manufacturing overhead rates. iii. Using your results from requirements 1 and 2 above, which customer do you think was complaining about being overcharged in the simple system? Which customer(s) will be unhappy? How would you respond to these concerns if raised by those customers?
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.
The Fleming Company of Anguilla (FCA) designs and produces automotive parts. In 2019, actual variable manufacturing
based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so FCA’s controller Matthias Hodge 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:
Department Cost Driver
Manufacturing
Overhead in 2019
Usage of Cost of Drivers by Customer
Contract
Gumbs
Motors
Connor
Motors
Richardson
Auto
Design CAD design hours $ 35,000 150 250 100
Production Engineering hours 25,000 130 100 270
Engineering Machine hours 220,000 300 3,700 1,000
Total $280,000
Required
i. Compute the manufacturing overhead allocated to each customer in 2019 using the simple costing system that uses machine-hours as the allocation base.
ii. Compute the manufacturing overhead allocated to each customer in 2019 using department-based manufacturing overhead rates.
iii. Using your results from requirements 1 and 2 above, which customer do you think was complaining about being overcharged in the simple system? Which customer(s) will be unhappy? How would you respond to these concerns if raised by those customers?
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