Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based Costing Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows: Activity Activity Pool Cost Activity Base Procurement $12,600 Number of purchase orders Scheduling 90,000 Number of production orders Materials handling 11,000 Number of moves Product development 50,000 Number of engineering changes Total cost $163,600 The estimated activity-base usage and unit information for two product lines was determined as follows: Number ofPurchase Orders Number ofProduction Orders Number ofMoves Number ofEngineering Change Orders Units Ovens 400 800 300 80 1,000 Refrigerators 300 400 200 120 500 Totals 700 1,200 500 200 1,500 a. Determine the activity rate for each activity cost pool. Procurement (per purchase order) $ Scheduling (per production order) $ Materials handling (per move) $ Product development (per engineering change order) $ b. Determine the activity-based cost per unit of each product. Ovens $ per unit Refrigerators $ per unit
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.
Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based Costing
Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows:
| Activity | Activity Pool Cost | Activity Base | ||
| Procurement | $12,600 | Number of purchase orders | ||
| Scheduling | 90,000 | Number of production orders | ||
| Materials handling | 11,000 | Number of moves | ||
| Product development | 50,000 | Number of engineering changes | ||
| Total cost | $163,600 |
The estimated activity-base usage and unit information for two product lines was determined as follows:
| Number of Purchase Orders |
Number of Production Orders |
Number of Moves |
Number of Engineering Change Orders |
Units |
||||||||||||
| Ovens | 400 | 800 | 300 | 80 | 1,000 | |||||||||||
| Refrigerators | 300 | 400 | 200 | 120 | 500 | |||||||||||
| Totals | 700 | 1,200 | 500 | 200 | 1,500 |
a. Determine the activity rate for each activity cost pool.
| Procurement (per purchase order) | $ |
| Scheduling (per production order) | $ |
| Materials handling (per move) | $ |
| Product development (per engineering change order) | $ |
b. Determine the activity-based cost per unit of each product.
| Ovens | $ per unit |
| Refrigerators | $ per unit |
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