A value stream has three activities and two products. The units produced and shipped per week are 50 of the limited model (Model K), characterized by special additional features, and 150 of the regular model (Model R), with only basic features. The conversion cost resource consumption patterns are shown as follows: Model K Model R Cost of Value stream Activities Cell manufacturing 2, 700 minutes 2, 100 minutes $ 19,200 Engineering 65 hours 15 hours 3,400 Testing 25 hours 55 hours 3,000 Total 25, 600 Required: 1. Calculate the ABC product cost (conversion cost) for Models K and R. 2. Calculate the value-stream average product cost (conversion cost). Assuming reasonable stability in the consumption patterns of the products and product mix, assess how well the products are grouped, based on similarity. 3. Calculate the cycle time for each product by dividing the total hours used for each product by the units produced of each product. Now calculate the DBC cost for each product. Comment on the significance of DBC for this setting.
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.
A value stream has three activities and two products. The units produced and shipped per week are 50 of the limited model (Model K), characterized by special additional features, and 150 of the regular model (Model R), with only basic features. The conversion cost resource consumption patterns are shown as follows:
| Model K | Model R | Cost of Value stream Activities | |
| Cell manufacturing | 2, 700 minutes | 2, 100 minutes | $ 19,200 |
| Engineering | 65 hours | 15 hours | 3,400 |
| Testing | 25 hours | 55 hours | 3,000 |
| Total | 25, 600 |
Required:
1. Calculate the ABC product cost (conversion cost) for Models K and R.
2. Calculate the value-stream average product cost (conversion cost). Assuming reasonable stability in the consumption patterns of the products and product mix, assess how well the products are grouped, based on similarity.
3. Calculate the cycle time for each product by dividing the total hours used for each product by the units produced of each product. Now calculate the DBC cost for each product. Comment on the significance of DBC for this setting.
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