Creations is a wholesaler that bakes and decorates special occasion multi-tiered cakes, the majority of which are wedding cakes. The supervisor, Clara Cook, is questioning if using direct labor cost provides an accurate allocation base for overhead assigned to each cake. Creations uses job costing for each job which usually consists of six to nine cakes. Cakes produced for each job are delivered to local retail locations that have ordered the cakes for their respective customers. After meeting with the cost accountant, Clara identified seven activities used in the production of cakes. She has provided estimates of the annual activities along with the actual usage of activities for the jobs completed during the busiest quarter of the year presented here. Annual estimated activity Number of cakes 1,531 Number of cakes $452,000 Average direct labor cost per cake $295.23 Activities, drivers, annual estimated activity, and estimated annual overhead cost Activities Driver Annual Estimated Activity Est. Annual Overhead Measuring # of pounds of ingredients 10,074 pounds $9,563 Mixing batter # of mixer hours 365 mixer hours 24,578 Baking # of oven hours 986 oven hours 21,238 Mixing icing # of cups 4,599 cups 13,845 Decorating # of decorating hours 6,570 decorating hours 15,456 Quality control # of supervision hours 219 supervision hours 6,475 Cleaning # of labor hours 913 labor hours 12,271 Determine the overhead allocation rates for each cost pool using activity-based costing.
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.
Creations is a wholesaler that bakes and decorates special occasion multi-tiered cakes, the majority of which are wedding cakes. The supervisor, Clara Cook, is questioning if using direct labor cost provides an accurate allocation base for overhead assigned to each cake. Creations uses
| Annual estimated activity | ||
| Number of cakes | 1,531 | |
| Number of cakes | $452,000 | |
| Average direct labor cost per cake | $295.23 |
Activities, drivers, annual estimated activity, and estimated annual overhead cost
|
Activities
|
Driver
|
Annual Estimated Activity
|
Est. Annual Overhead
|
||||
|---|---|---|---|---|---|---|---|
|
Measuring
|
# of pounds of ingredients
|
10,074 | pounds | $9,563 | |||
|
Mixing batter
|
# of mixer hours
|
365 | mixer hours | 24,578 | |||
|
Baking
|
# of oven hours
|
986 | oven hours | 21,238 | |||
|
Mixing icing
|
# of cups
|
4,599 | cups | 13,845 | |||
|
Decorating
|
# of decorating hours
|
6,570 | decorating hours | 15,456 | |||
|
Quality control
|
# of supervision hours
|
219 | supervision hours | 6,475 | |||
|
Cleaning
|
# of labor hours
|
913 | labor hours | 12,271 |
Determine the overhead allocation rates for each cost pool using activity-based costing. (Round answers to 2 decimal places, e.g. 15.25.)
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Measuring
|
Mixing Batter
|
Baking
|
Mixing Icing
|
Decorating
|
Quality Control
|
Cleaning
|
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Overhead allocation rates
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