The following information has been extracted from the cost information system of Kevian manufacturers ltd for the last 12 weeks in the year ended 31st December 2020 Week Machine Hours Direct Labour Hours Production department Overhead Cost 1 68 30 1,190,000 2 88 35 1,211,000 3 62 36 1,004,000 4 72 20 917,000 5 60 47 770,000 6 96 68 1,456,000 7 78 44 1,180,000 8 46 38 710,000 9 72 68 1,316,000 10 94 30 1,032,000 11 68 29 752,000 12 48 38 963,000 Required: 1. Using the high-low cost estimation method develop a cost estimation function for Production department Overhead Cost using the Machine hours as the activity level. 2. Using the high-low cost estimation method develop a cost estimation function for Production department Overhead Cost using the Direct hours as the activity level. 3. The actual Production Department Overhead Cost in week 12 from above is 963,000. Using the machine hours of 48, direct labour hours of 38 from week 12 explain which of the two cost functions developed above is more
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 following information has been extracted from the cost information system of Kevian manufacturers ltd for the last 12 weeks in the year ended 31st December 2020
Week |
Machine Hours |
Direct Labour Hours |
Production department |
1 |
68 |
30 |
1,190,000 |
2 |
88 |
35 |
1,211,000 |
3 |
62 |
36 |
1,004,000 |
4 |
72 |
20 |
917,000 |
5 |
60 |
47 |
770,000 |
6 |
96 |
68 |
1,456,000 |
7 |
78 |
44 |
1,180,000 |
8 |
46 |
38 |
710,000 |
9 |
72 |
68 |
1,316,000 |
10 |
94 |
30 |
1,032,000 |
11 |
68 |
29 |
752,000 |
12 |
48 |
38 |
963,000 |
Required:
1. Using the high-low cost estimation method develop a cost estimation function for Production department Overhead Cost using the Machine hours as the activity level.
2. Using the high-low cost estimation method develop a cost estimation function for Production department Overhead Cost using the Direct hours as the activity level.
3. The actual Production Department Overhead Cost in week 12 from above is 963,000. Using the machine hours of 48, direct labour hours of 38 from week 12 explain which of the two cost functions developed above is more
4. Calculate and interpret the coefficient of Determination (R2 ) using the cost estimation function derived using the Machine hours as the activity level.
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