Learning Goal: I’m working on a accounting question and need guidance to help me learn.
Q1.What is the difference between the product cost and period cost? Give some examples for each type[2 marks]
Answer:
Q2. In cost accounting, direct costs are easily and economically traced to cost object. On the other hand, overheads cannot be economically traced to cost object. Therefore, allocating overheads is considered as the main problem in cost accounting, whereas traditional methods such as Single plantwide factory overhead rate method and Multiple production department factory overhead rate method have been used. In addition, developed methods such as Activity based costing method (ABC) has been used to enhance the allocation of overheads to cost object.
Students are required to criticize traditional methods and explain how is ABC being applied to a manufacturing company? What are the disadvantages of the ABC method? [2 marks]
Answer:
Q3.The AMS Manufacturing Company uses a job costing system with machine hours as the allocation base for overhead.The company uses normal costing to develop the overhead allocation rate.The following data are available for the latest accounting period:
Estimated fixed factory overhead costSAR 160,000
Estimated machine-hours100,000
Actual fixed factory overhead cost incurredSAR 170,000
Actual machine-hours used 110,000
Jobs worked on:
Job No.Machine Hours Used
102012,000
103018,000
104015,000
105010,000
a.Compute the overhead allocation rate.[1 mark]
b.Determine the overhead allocated to job 1040. [1 mark]
Answer:
Q4.Karim Surf Boards makes custom boards for professional surfers.The boards vary according to the types of materials requested by customers and the amount of direct labor required for the finishing process.
The following costs are estimated for 2021:
Number of surf boards3,000
Direct labor hours45,000
Direct material costSAR 175,000
Direct labor costSAR 900,000
Overhead cost SAR 675,000
During 2021 actual costs were:
Number of surfboards 3,300
Direct labor hours46,300
Direct materialsSAR 185,000
Direct laborSAR 850,000
Overhead SAR 664,000
a.Explain why job costing, and not process costing, should be used for this organization. [1 mark]
b.Karim uses a normal costing system.Overheard is allocated on the basis of direct labor hours.Calculate the manufacturing cost of a surfboard that takes SAR 150 of direct materials and 36 hours of direct labor.[1 mark]
Answer:
Q5. Abdulkrim Company manufactures a product A.The company estimates the cost function for the total costs. The cost driver is number of units.The followinginformation were collected:
MonthUnitsTotal Costs
January3,560SAR 242,400
February3,800SAR 252,000
March4,000SAR 260,000
April3,600SAR 244,000
May3,200SAR 228,000
June3,040 SAR 221,600
Compute a cost function using the high-low method.[2 marks]
Answer:
