The job costing system at Siobhan's Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 14 intricate personalized frames, and Job 325, an order of 7 standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly designed activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows. Budgeted Overhead Activity Driver Budgeted Quantity of Activity Driver Purchasing $36,100 Purchased orders processed 1,900 Material handling 38,400 Material moves 4,800 Machine maintenance 160,000 Machine-hours 10,000 Product inspection 4,000 Inspections 1,000 Packaging 21,600 Units produced 3,600 Total $260,100 Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 Job 325 Number of purchase orders 27 7 Number of material moves 16 4 Machine-hours 30 70 Number of inspections 12 2 Units produced 14 7 1. Compute the total overhead allocated to each job under a simple costingsystem, where overhead is allocated based on machine-hours. 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. 3. Explain why Siobhan's Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process.
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
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|
Budgeted Overhead
|
Activity Driver
|
Budgeted Quantity of Activity Driver
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|---|---|---|---|
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Purchasing
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$36,100
|
Purchased orders processed
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1,900
|
|
Material handling
|
38,400
|
Material moves
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4,800
|
|
Machine maintenance
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160,000
|
Machine-hours
|
10,000
|
|
Product inspection
|
4,000
|
Inspections
|
1,000
|
|
Packaging
|
21,600
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Units produced
|
3,600
|
|
Total
|
$260,100
|
|
|
|
Job 215
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Job 325
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|---|---|---|
|
Number of purchase orders
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27
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7
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|
Number of material moves
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16
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4
|
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Machine-hours
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30
|
70
|
|
Number of inspections
|
12
|
2
|
|
Units produced
|
14
|
7
|
|
1.
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Compute the total overhead allocated to each job under a simple costingsystem, where overhead is allocated based on machine-hours.
|
|
2.
|
Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers.
|
|
3.
|
Explain why
Siobhan's
Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process. |
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