Chapter 4, Problem 4.4AP

a)

To determine

Traditional Product Costing: Accounting process to determine the total cost incurred to manufacture a product on the basis of volume metric is known as traditional product costing.

Overhead: Overhead refers to the costs, which are utilized in business activities, however cannot be related to a specific activity or product.

Direct Labor Cost: Direct labor cost is the cost of the labor paid to the employees who are directly involved in the conversion of the raw materials to the finished products. For example: Wages paid to the mechanic.

To compute: Total manufacturing cost per liter of products, under traditional costing.

b)

To determine

Activity-Based Costing (ABC): Under activity-based costing the different cost is assigned to a different activity. The cost is determined on the basis of the activities performed by the business.

Overhead: Overhead refers to the costs, which are utilized in business activities, however cannot be related to a specific activity or product.

To Prepare: A schedule showing computation of overhead rates under activity-based costing.

c)

To determine

Cost Driver: The cost driver refers to the all the activities on which the money is spent to produce the product or the service. It has a cause-effect relationship with the resources utilized in production. The cost drivers are used to form the activity cost pools.

Activity cost pool: Activity cost pool refers to the overhead cost related to an activity. This is often calculated to get an accurate estimate of the production cost.

To Prepare: The schedule to assign activity’s overhead cost pool to each product based on the uses of cost driver.

d)

To determine

Activity-Based Costing (ABC): Under activity-based costing the different cost is assigned to a different activity. The cost is determined on the basis of the activities performed by the business.

To Compute: The total manufacturing cost per unit for each product under activity-based costing.

e)

To determine

Activity-Based Costing (ABC): Under activity-based costing the different cost is assigned to a different activity. The cost is determined on the basis of the activities performed by the business.

Traditional Product Costing: Accounting process to determine the total cost incurred to manufacture a product on the basis of volume metric is known as traditional product costing.

Overhead: Overhead refers to the costs, which are utilized in business activities, however cannot be related to a specific activity or product.

To Write: A memo to JE discussing the implications of the analysis done.