Cut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated overhead based on total machine hours. A recent assessment of overhead costs has shown that these costs are now in excess of 40 percent of the company’s total costs. As an attempt to better control overhead, Cut It Up is adopting an activity-based costing system. Each cutting board goes through the following processes:a. Cutting—Boards are selected from inventory and are cut to the required width and length. Imperfections in boards (such as knots or cracks) are identified and removed.b. Assembly—Cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets.c. Shaping—Once the glue has set, the boards are sent to the shaping process, where they are cut into unique shapes.d. Sanding—After being shaped, the cutting boards must be sanded smooth.e. Finishing—Sanded cutting boards receive a coat of mineral oil to help preserve the wood.f. Packing—Finished cutting boards are placed in boxes of 12. The boxes are sealed, addressed, and sent to one of the kitchen stores. What do you suppose are components of overhead for this company? Determine a logical cost driver for each process.
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.
Cut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated
a. Cutting—Boards are selected from inventory and are cut to the required width and length. Imperfections in boards (such as knots or cracks) are identified and removed.
b. Assembly—Cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets.
c. Shaping—Once the glue has set, the boards are sent to the shaping process, where they are cut into unique shapes.
d. Sanding—After being shaped, the cutting boards must be sanded smooth.
e. Finishing—Sanded cutting boards receive a coat of mineral oil to help preserve the wood.
f. Packing—Finished cutting boards are placed in boxes of 12. The boxes are sealed, addressed, and sent to one of the kitchen stores.
What do you suppose are components of overhead for this company? Determine a logical cost driver for each process.
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