what are the reasons to adopt activity-based costing in a job-order environment?

Expert Solution

It is very necessary to determine the correct amount of cost for a particular job. Traditional Costing system assigns fixed overheads on the basis of machine hours, labor hour or any other basis suitable, but it does not give the true and correct picture of the actual cost absorbed.

Say a job takes 30% of machine hours and has negligible labor cost. If Manufacturing Overheads are assigned according to labor hour then the resulting cost would be understated because labor hours would be very less in this machine oriented job.

ABC costing helps in assigning the Indirect cost (Manufacturing Overheads like manager’s salary, ordering cost, material handling cost etc.) in a proper and systematic way. The Real profit for a particular job will be reflected correctly if ABC is used.

ABC helps in providing profit information product wise, customer wise etc. It helps in Effective and correct pricing decisions.

ekkarill92 answered 1 year ago

Job Costs Using Activity-Based Costing Heitger Company is a job-order costing firm that uses activity-based costing...

Job Costs Using Activity-Based Costing Heitger Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Heitger identified three overhead activities and related drivers. Budgeted information for the year is as follows: Activity Cost Driver Amount of Driver Materials handling $101,200 Number of moves 4,000 Engineering 142,400 Number of change orders 8,000 Other overhead 358,800 Direct labor hours 52,000 Heitger worked on four jobs in July. Data are as follows: Job 13-43 Job 13-44 Job...

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Job Costs Using Activity-Based Costing Heitger Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Heitger identified three overhead activities and related drivers. Budgeted information for the year is as follows: Activity Cost Driver Amount of Driver Materials handling $54,250 Number of moves 2,500 Engineering 120,700 Number of change orders 8,500 Other overhead 148,500 Direct labor hours 45,000 Heitger worked on four jobs in July. Data are as follows: Job 13-43 Job 13-44 Job...

Describe the differences between job order costing, process costing, and Activity Based Costing (ABC). What are...

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What is a job-order costing system? What do you know about Activity-Based-Costing (ABC) system? What are...

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Lamour Corporation is a job order costing company that uses activity-based costing to apply overhead to...

Lamour Corporation is a job order costing company that uses activity-based costing to apply overhead to jobs. The following overhead activities were budgeted for the year. Activity Cost Driver Amount of driver Setups $240,000 Number of setups 6,000 Purchasing 160,000 Number of parts 20,000 Other overhead 300,000 Direct labor hours 80,000 The following information about the jobs was given for April. Job 101 Job 102 Job 103 Job 104 Balance 4/1 $64,900 $40,770 $30,500 0 Direct materials 54,000 37,900 25,000...

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1-Describe job order costing, process costing and activity-based costing. Provide examples of the type of companies that would use these costing methods (i.e., three company examples, one for each type of method). 2-Discuss the differences between relevant costs, opportunity costs and sunk costs. Provide examples with respect to how these costs pertain to incremental analysis. 3-Define a static budget and a flexible budget. Which is more useful for companies and why? How could you use variance analysis in your personal...

7–1:In what fundamental ways does activity-based costing differ from traditional costing methods such as job-order costing...

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what are the reasons to adopt activity-based costing in a job-order environment?

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