Question

In: Accounting

Q1. Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns...

Q1. Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. Do you think Activity-Based Costing (ABC) has any advantages if so discuss few advantages and also the challenges of this system and how we can resolve it?        

[2 Marks ]

Q2. ALHAMAD Corporation uses process costing. A number of transactions that occurred in December are listed below.

(1) Raw materials that cost $38,200 are withdrawn from the storeroom for use in the Mixing Department. All of these raw materials are classified as direct materials.
(2) Direct labor costs of $36,500 are incurred, but not yet paid, in the Mixing Department.
(3) Manufacturing overhead of $42,100 is applied in the Mixing Department using the department's predetermined overhead rate.
(4) Units with a carrying cost of $112,400 finish processing in the Mixing Department and are transferred to the Drying Department for further processing.
(5) Units with a carrying cost of $143,800 finish processing in the Drying Department, the final step in the production process, and are transferred to the finished goods warehouse.
(6) Finished goods with a carrying cost of $138,500 are sold.

Required:
Prepare journal entries for each of the transactions listed above.

Q3. Explain why a plant wide overhead allocation system may not be optimal for many companies in today is business environment? [2 Marks ]

Solutions

Expert Solution

Q1. Advantages of Activity Based Costing are as follows

1.Activity based costing is working only on the activites so management can take decisions by knowing the nature of each activity

2.Activites can be of two types those are value added and non value added. Activity based costing helps the management to focus on the value added activites and eliminating the non value added activites

3. Cost will be approtined on the basis of cost drivers.

4. The statement of expenditure is prepared on activity wise and compare the each activity with one another.

Q2. Journal entries

General Journal Debit Credit
1 Work in progress - Mixing Department $38,200
Raw Material $38,200
Raw material using for manufaturing
2 Work in progress - Mixing Department $36,500
Direct Labour $36,500
Recordign dirct labour cost
3 Work in progress - Mixing Department $42,100
Manufacturing Expenses $42,100
Recordign Manufaturing exoenses
4 Work in progress-Drying department $112,400
Work in progress - Mixing Department $112,400
Recordign transfer of the product to next process
5 Finished goods $143,800
Work in progress-Drying department $143,800
6 Sales $138,500
Cost of goods Sold $138,500
Recording of sales

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