Activity Expected Cost Activity Driver Activity Capacity Setting up equipment Ordering costs Machine costs Number of setups Number of orders Machine hours Receiving hours S480,000 600 360,000 840,000 18,000 42,000 Receiving 400,000 10,000 Model A Model B Direct materials $600,000 $480,000 16,000 6,000 $800,000 $480,000 8,000 2,000 200 Direct labor Units completed Direct labor hours Number of setups 400 Number of orders Machine hours 6,000 24,000 12,000 18,000 7,000 Receiving hours 3,000
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.
Deoro Company has identified the following
Deoro produces two models of dishwashers with the following expected prime costs and activity demands:
The company’s normal activity is 8,000 direct labor hours.
Required:
1. Determine the unit cost for each model using direct labor hours to apply
overhead.
2. Determine the unit cost for each model using the four activity drivers.
3. Which method produces the more accurate cost assignment? Why?
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