Hades Inc. manufactures pens and mechanical pencils used for gifts. Overhead costs are currently allocated using direct labor hours, but the controller has recommended an activity based costing using the following data: ACTIVITY COST DRIVER COST COST DRIVER VOLUME Pencils Pens Setting-up No. of setups $ 72,000 20 30 Inspecting No. of parts 21,600 4 6 Packing and Shipping No. of boxes shipped 43,200 45,000 75,000 TOTAL OVERHEAD $136,800 REQUIRED: Compute the overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of hours required to assemble each box is .1 for pencil and .2 for pens and that 45,000 boxes and 75,000 boxes were produced for the pencils and pens, respectively. Compute the overhead to be allocated to each product using activity based costing Should the company follow the controller’s recommendation?
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.
Hades Inc. manufactures pens and mechanical pencils used for gifts. Overhead costs are currently allocated using direct labor hours, but the controller has recommended an activity based costing using the following data:
ACTIVITY |
COST DRIVER |
COST |
COST DRIVER VOLUME |
|
|
Pencils |
Pens |
|||
|
Setting-up |
No. of setups |
$ 72,000 |
20 |
30 |
|
Inspecting |
No. of parts |
21,600 |
4 |
6 |
|
Packing and Shipping |
No. of boxes shipped |
43,200 |
45,000 |
75,000 |
|
TOTAL OVERHEAD |
$136,800 |
REQUIRED:
- Compute the overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of hours required to assemble each box is .1 for pencil and .2 for pens and that 45,000 boxes and 75,000 boxes were produced for the pencils and pens, respectively.
- Compute the overhead to be allocated to each product using activity based costing
- Should the company follow the controller’s recommendation?
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