Scott, Inc., manufactures two products, Regular and Deluxe, and applies overhead on the basis of direct labor hours. Anticipated overhead and direct labor time for the upcoming accounting period are $1,600,000 and 25,000 hours, respectively. Information about the company's products follows.
Estimated production volume: 3,000 units
Direct materials cost: $28 per unit
Direct labor per unit: 3 hours at $15 per hour
Estimated production volume: 4,000 units
Direct materials cost: $42 per unit
Direct labor per unit: 4 hours at $15 per hour
Scott's overhead of $1,600,000 can be identified with three major activities: order processing ($250,000), machine processing ($1,200,000), and product inspection ($150,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow.
A. Compute the application rates that would be used for order processing, machine processing, and product inspection in an activity-based costing system.
B. Assuming use of activity-based costing, compute the unit manufacturing costs of Regular and Deluxe if the expected manufacturing volume is attained.
C. How much overhead would be applied to a unit of Regular and Deluxe if the company used traditional costing and applied overhead solely on the basis of direct labor hours? Which of the two products would be undercosted by this procedure? Overcosted?
This posting articulates the concept of ABC.
Cost Behavior Patterns and Concepts.
SAC currently uses a basic standard cost system. Management knows very little about other concepts of costing and the benefits of having multiple costing methods. Your superior has asked that you and your team put together a presentation to management explaining various costing concepts as it relates to SAC (explain the usage and benefits of each).
As a SAC corporate business financial analyst, you must have an expert understanding of the various costing methods. Within your groups, divide the costing concepts among the individual team members to analyze and become an expert in at least one costing concept within your group.
Write a paper to include the following:
the definition of the concept
how and when the concept could be used by SAC
how the application of the concept differs from the other concepts
its advantages and disadvantages
full costing/absorption costing