5th Edition

ISBN: 9781259565403

Author: William N. Lanen Professor, Shannon Anderson Associate Professor, Michael W Maher

Publisher: McGraw-Hill Education

Concept explainers

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 …

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 compari…

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Textbook Question

Chapter 9, Problem 38E

Activity-Based Costing versus Traditional Costing

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows:

Chapter 9, Problem 38E, Activity-Based Costing versus Traditional Costing Doaktown Products manufactures fishing equipment , example 1

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Chapter 9, Problem 38E, Activity-Based Costing versus Traditional Costing Doaktown Products manufactures fishing equipment , example 2

Required

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?
b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?
c. Draft a memo for the plant manager explaining why the two systems result in different costs along with your recommendation for which costing system to use.

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Chapter 9, Problem 37E

Chapter 9, Problem 39E

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Chapter 9 Solutions

Fundamentals of Cost Accounting

Ch. 9 - Give examples of cost drivers commonly used to...Ch. 9 - What is the death spiral? How is it related to the...Ch. 9 - The product costs reported using either plantwide...Ch. 9 - Why do companies commonly use direct labor-hours...Ch. 9 - What are the costs of moving to an activity-based...Ch. 9 - What are the basic steps in computing costs using...Ch. 9 - Prob. 7RQ Ch. 9 - Prob. 8RQ Ch. 9 - What type of organization is most likely to...Ch. 9 - Prob. 10RQ

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