Compute activity rates and apply to jobs Fortunado Company uses ABC to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for the upcoming year and their allocation bases are as follows: Total Budgeted Manufacturing Overhead Activity Allocation Base Cost Materials $6,400 Number of parts handling Machine setup 9,000 Number of setups Insertion of parts 54,400 Number of parts Finishing direct labor 89,700 | hours Finishing Total $159,500 Fortunado expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 3,200 parts, require 25 setups, and consume 2,300 hours of finishing time. Job 420 used 250 parts, required 3 setups, and consumed 130 finishing hours. Job 510 used 425 parts, required 6 setups, and consumed 320 finishing hours. Requirements 1. Compute the cost allocation rate for each activity.
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.
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