Required An analysis of total costs for each product if all overhead costs are absorbed on a direct labour hour basis Using appropriate cost drivers present an analysis of total costs for each product using activity based costing Comment on the differences between the results obtained in (i) and (ii) above
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.
ABC limited produces three products at Kariobangi light industries in Nairobi. The following information provide details of the costs, volume and transaction cost drivers for year 2020.
|
Particulars |
A |
B |
C |
|
Number of units produced |
90,000 |
30,000 |
15,000 |
|
Direct material (Ksh) |
30,000 |
40,000 |
15,000 |
|
Direct labour (Ksh) |
20,000 |
30,000 |
10,000 |
|
Machine hours per unit (hours) |
5 |
3 |
7.5 |
|
Direct labour hours per unit (hours) |
2.5 |
3 |
1.5 |
|
Number of production setups |
5 |
10 |
50 |
|
Number of packaged deliveries |
18 |
7 |
50 |
|
Number of stores receipts |
50 |
70 |
700 |
|
Number of Engineering orders |
45 |
25 |
60 |
The overhead costs are currently absorbed by using a direct labour hour rate and the total of the production overhead for the period has been analysed as follows:
|
Particulars |
Amount (Ksh) |
|
Machining costs |
1,000,000 |
|
Setup costs |
75,000 |
|
Stores receiving costs |
900,000 |
|
Packaging costs |
650,000 |
|
Engineering costs |
750,000 |
|
Total |
3,375,000 |
Required
- An analysis of total costs for each product if all overhead costs are absorbed on a direct labour hour basis
- Using appropriate cost drivers present an analysis of total costs for each product using activity based costing
- Comment on the differences between the results obtained in (i) and (ii) above
- State any pricing and profit implications from the differences in (iii) above
Step by step
Solved in 4 steps with 4 images
