National university/ post graduate program

Assignment No. 1/ September 2020

Costing systems (job costing system, process costing system and activity based costing ABC)

Problem 1: Destin Products uses a job-costing system with two direct-cost categories (direct materials and
direct manufacturing labor) and one manufacturing overhead cost pool. Destin allocates manufacturing
overhead costs using direct manufacturing labor costs. Destin provides the following information:
Budgeted for Actual results for
2011 2011
Direct material costs 2,000,000 1,900,000
Direct manufacturing labor costs 1,500,000 1,450,000
Manufacturing overhead costs 2,700,000 2,755,000

Instructions:

1- Compute the actual and budgeted manufacturing rate for 2011.

2- During March, the job cost recorded for job 626 contained the following information
Direct material used $40,000
Direct manufacturing labor costs $30,000
Compute the cost of job 626 using normal costing

Problem 2: The Zee manufacturing company produces a single product which goes through one process only.
The manufacturing cycle takes a month. The company started its manufacturing operation on 1 st February, 2018
and costs of production for this month were as follows:

Material  Rs. 41,412;      Labor    Rs. 32,054;         FOH        Rs. 23,870

The production statistics for the month were as follow:

Units completed and transfer to finished goods store Rs. 6,500

Unit in Process on February 31, 2018 was 1,600 (Material 40%, Labor and FOH 20 per cent)

Requirement: Prepare the Cost of Production Report at the end of February, 2018

Problem 3: Assume High Challenge Company makes two products, touring bicycles and mountain bicycles.
The touring bicycles product line is a high-volume line, while the mountain bicycle is a low-volume, specialized
product. the company identified four activities that were important cost drivers and a cost driver used to allocate
overhead. These activities were (1) purchasing materials, (2) setting up machines when a new product was
started, (3) inspecting products, and (4) operating machines.

Accountants estimated the overhead and the volume of events for each activity. For example, management
estimated the company would purchase 100,000 pieces of materials that would require overhead costs
of $200,000 for the year. These overhead costs included salaries of people to purchase, inspect, and store
materials. Setting up machines for a new product would need 400 setups and overhead of $800,000.  The
company would have 4,000 inspections and overhead of $400,000.  Finally, running machines would cost
$600,000 for 20,000 machine hours.
These estimates were made last year and will be used during all of the current year. In practice, companies most
frequently set rates for the entire year, although some set rates for shorter periods, such as a quarter.

Activity Overhead cost Estimate units

Purchasing material $200,000 100,000 piecses
Machine setup 800,000 400 setups
Inspections 400,000 4,000 inspect hours
Running machine 600,000 20,000 mach/hour
2,000,000

For January, the High Challenge Company has the following information about the actual number of cost driver
units for each of the two products:

Touring Mountain
Purchasing materials 6,000 pieces 4,000
Machine setup 10 setups 30
Inspections 200 hours 200
Running machine 1,500 hours 500

Allocate the overhead costs using activity based cost method