The Widget Company produces two types of widgets, Standard and Deluxe. Data related to the two products is presented below. Standard Deluxe Annual production in units 25,000 50,000 Direct material costs $75,000 $150,000 Direct manufacturing labor costs $25,000 $50,000 Direct manufacturing labor-hours 1,250 2,500 Machine hours 12,500 25,000 Number of production runs 25 25 Inspection hours 500 250 Both products pass through Departments A and Department B. The departments’ combined manufacturing overhead costs are: Total Machine Costs $187,500 Setup Costs 60,000 Inspection Costs 52,500 Required: Using Activity Based Costing, Compute the activity rates for Machine Costs, Setup Costs, and Inspection Costs. Compute the manufacturing overhead cost per unit for each product, Standard and Deluxe. Compute the total manufacturing cost per unit for each product.
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 Widget Company produces two types of widgets, Standard and Deluxe. Data related to the two products is presented below.
|
|
Standard |
Deluxe |
|
Annual production in units |
25,000 |
50,000 |
|
Direct material costs |
$75,000 |
$150,000 |
|
Direct manufacturing labor costs |
$25,000 |
$50,000 |
|
Direct manufacturing labor-hours |
1,250 |
2,500 |
|
Machine hours |
12,500 |
25,000 |
|
Number of production runs |
25 |
25 |
|
Inspection hours |
500 |
250 |
Both products pass through Departments A and Department B. The departments’ combined manufacturing
Total
Machine Costs $187,500
Setup Costs 60,000
Inspection Costs 52,500
Required:
Using Activity Based Costing,
- Compute the activity rates for Machine Costs, Setup Costs, and Inspection Costs.
- Compute the manufacturing overhead cost per unit for each product, Standard and Deluxe.
- Compute the total
manufacturing cost per unit for each product.
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