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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.
Custom Boat Manufacturing Company makes customised boats and uses job costing system. The company has two support departments (administration and security) and two manufacturing departments (machining and assembly). The following table shows the total
|
Cost Allocation Method |
Machining Department Cost |
Assembly Department Cost |
|
Direct Method |
$ 8,650,000 |
$ 7,350,000 |
|
Step-down Method |
$ 8,500,000 |
$ 7,500,000 |
|
Reciprocal Method |
$ 9,000,000 |
$ 7,000,000 |
Management of the company has decided that it will achieve the most appropriate
|
Manufacturing Departments |
Machine Hours |
Labour Hours |
|
Machining Department |
200,000 |
15,000 |
|
Assembly Department |
80,000 |
35,000 |
Required:
- Based on the following information, determine the total costs for Job MT27 if the company uses Reciprocal Method to allocate support departments’ costs to the manufacturing
|
Job no. MT27 |
Machining |
Assembly |
|
Direct materials |
$36,000 |
$6,710 |
|
Direct labour cost |
$1,550 |
$1,650 |
|
Direct labour hours |
45 |
70 |
|
Machine Hours |
210 |
20 |
The company evaluates the performance of the operating department managers on the basis of how well they managed their total costs, including allocated costs. As the manager of the Machining Department, which allocation method would you prefer to allocate support department’s costs to manufacturing departments?
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