In: Accounting
Part 1. New Firm uses an ABC system. The system includes 4 cost pools: mixing, machining finishing and packing. Mixing is allocated on the basis of DM cost; machining is allocated on the basis of machine hours; finishing is allocated on the basis of DL hours and packing is allocated on the basis of product weight. At the beginning of this year, the following estimates were made
Direct Materials $734,000
Direct Labor 953,000
Mixing cost 377,000
Machining cost 721,000
Finishing cost 467,000
Packing cost 167,000
Units produced 800
Average weight per unit 89 ounces
DL hours 32,000
Machine hours 306,000
Job 491 was produced on June 16. It contained $3,890 in DM and $8,400 in DL. It weighed 52 ounces. Production required 416 DLH and 981 machine hours.
Calculation of total cost using absorption costing | |||||
Particulars | Cost | ||||
Mixing | 377000 | ||||
Machining | 721000 | ||||
Finishing | 467000 | ||||
Packing | 167000 | ||||
Total Overhead cost | 1732000 | ||||
Total Direct labour hrs | 32000 | ||||
Overhead absorption per hr | 54.125 | ||||
Cost of Job 491 | |||||
Particulars | Amt | ||||
Direct material | 3,890 | ||||
Direct labour | 8,400 | ||||
Overhead cost | 22,516 | ||||
54.125/hr X 416labour hrs | |||||
Total Cost | 34,806 | ||||
Calculation of total cost using Activity Based costing | |||||
Mixing | Machining | Finishing | Packing | ||
A | Cost | 377000 | 721000 | 467000 | 167000 |
B | Activity | DM Cost | Machine hrs | DL hrs | Weight of product |
C | Total respectivie activity | 734000 | 306000 | 32000 | 71200 (800*89) |
D | Per activity cost (A/C) | 0.514 | 2.356 | 14.594 | 2.346 |
Particulars | Amt | Amt | |||
Direct material | 3,890 | ||||
Direct labour | 8,400 | ||||
Overheads | |||||
Mixing | |||||
(3890 X 0.514) | 1,998 | ||||
Machining | |||||
(981*2.356) | 2,311 | ||||
Finishing | |||||
(416DL hrs X 14.594) | 6,071 | ||||
Packing | |||||
(52 ounces X 2.346/ounce) | 122 | ||||
Total overheads | 10,502 | ||||
Total cost | 22,792 |