Arklan Production is upgrading its manufacturing process from a manual process to a highly automated system. Management believes that the new system will result in greater efficiencies and a better finished product. Arklan is also working on a plan to downsize staff after the implementation of the new system. Arklan has used a traditional absorption costing system to calculate unit product costs for external financial reporting. In the past, Arklan has allocated its manufacturing overhead costs using a predetermined plant-wide overhead rate based on direct labor hours. The controller realizes that the new system may require changing the overhead allocation process. Management plans to take the opportunity to reconsider other improvements to the costing system. Identify and explain three benefits of using departmental overhead rates to allocate overhead costs. Explain the difference between absorption costing and variable costing. Identify which is more suitable for internal decision making and explain.
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.
Arklan Production is upgrading its manufacturing process from a manual process to a highly automated system. Management believes that the new system will result in greater efficiencies and a better finished product. Arklan is also working on a plan to downsize staff after the implementation of the new system. Arklan has used a traditional absorption costing system to calculate unit product costs for external financial reporting. In the past, Arklan has allocated its
- Identify and explain three benefits of using departmental overhead rates to allocate overhead costs.
- Explain the difference between absorption costing and variable costing. Identify which is more suitable for internal decision making and explain.
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