FAITH Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor hours (DLHs). The company has two products, W82R and L48S, about which it has provided the following data: W82R L48S Direct materials per unit P11.50 P62.90 Direct labor per unit P2.00 P13.00 Direct labor-hours per unit 0.20 1.30 Annual production 45,000 10,000 The company’s estimated total manufacturing overhead for the year is P1,521,960 and the company’s estimated total direct labor-hours for the year is 22,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Supporting direct labor (DLHs) P 352,000 Setting up machines (setups) 201,960 Parts administration (part types) 968,000 Total P1,521,960 Activities W82R L48S Total Supporting direct labor 9,000 13,000 22,000 Setting up machines 814 374 1,188 Parts administration 924 1,012 1,936 Required: Determine the unit product cost of each of the company's two products under the traditional costing system. Determine the unit product cost of each of the company's two products under an activity-based costing system
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.
FAITH Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor hours (DLHs). The company has two products, W82R and L48S, about which it has provided the following data:
|
W82R |
L48S |
||
|
Direct materials per unit |
P11.50 |
P62.90 |
|
|
Direct labor per unit |
P2.00 |
P13.00 |
|
|
Direct labor-hours per unit |
0.20 |
1.30 |
|
|
Annual production |
45,000 |
10,000 |
The company’s estimated total manufacturing overhead for the year is P1,521,960 and the company’s estimated total direct labor-hours for the year is 22,000.
The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
|
Activities and Activity Measures |
Estimated Overhead Cost |
|
|
Supporting direct labor (DLHs) |
P 352,000 |
|
|
Setting up machines (setups) |
201,960 |
|
|
Parts administration (part types) |
968,000 |
|
|
Total |
P1,521,960 |
|
Activities |
W82R |
L48S |
Total |
|
|
Supporting direct labor |
9,000 |
13,000 |
22,000 |
|
|
Setting up machines |
814 |
374 |
1,188 |
|
|
Parts administration |
924 |
1,012 |
1,936 |
Required:
- Determine the unit product cost of each of the company's two products under the traditional costing system.
- Determine the unit product cost of each of the company's two products under an activity-based costing system
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