Real Cool produces air conditioners in two departments: Assembly and Finishing. Budgeted information follows. Department Budgeted Cost Allocation Base Budgeted Usage Assembly $ 320,000 Machine hours 8,000 machine hours Finishing 25,000 Direct labor hours 5,000 direct labor hours Additional production information for two models of its air conditioners follows. Per unit Model A Model T Selling price $ 600 $ 580 Direct materials 200 190 Direct labor 250 260 Model A Model T Units produced 500 600 Assembly machine hours per unit 2 MH 4 MH Finishing direct labor hours per unit 3 DLH 4 DLH 1a. Compute departmental overhead rates and determine overhead cost per unit for each model. 1b. Use machine hours to allocate budgeted Assembly costs and use direct labor hours to allocate budgeted Finishing costs. 2. Compute the total product cost per unit for each model. 3. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).
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.
Real Cool produces air conditioners in two departments: Assembly and Finishing. Budgeted information follows.
| Department | Budgeted Cost | Allocation Base | Budgeted Usage | |
|---|---|---|---|---|
| Assembly | $ 320,000 | Machine hours | 8,000 | machine hours |
| Finishing | 25,000 | Direct labor hours | 5,000 | direct labor hours |
Additional production information for two models of its air conditioners follows.
| Per unit | Model A | Model T |
|---|---|---|
| Selling price | $ 600 | $ 580 |
| Direct materials | 200 | 190 |
| Direct labor | 250 | 260 |
| Model A | Model T | |||
|---|---|---|---|---|
| Units produced | 500 | 600 | ||
| Assembly machine hours per unit | 2 | MH | 4 | MH |
| Finishing direct labor hours per unit | 3 | DLH | 4 | DLH |
1a. Compute departmental overhead rates and determine overhead cost per unit for each model.
1b. Use machine hours to allocate budgeted Assembly costs and use direct labor hours to allocate budgeted Finishing costs.
2. Compute the total product cost per unit for each model.
3. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).
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