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BAO2204: 2nd Assignment The current costing system that is presumed to being used is the Job Costing system: Cost Driver: Machine Hours According to the calculations that are specified in the first spreadsheet attachment, it can be assumed that the Job Costing system is the current costing system that Pilot Plant is allocating to the Low Voltage Group. As the above diagram suggests, this system currently comprises of 3 cost pools which are: Variable Overhead, Fixed Overhead & Labour, as well as Direct Materials. The main cost driver for these cost pools is the Machine hours, being 2700 hours. Under the Job Costing system, the calculation of the predetermined overhead rate has played an important part in the calculation of these cost pools, as the amount of $157.41 was the catalyst for calculating the Product Unit cost, the Direct Materials Cost, the Variable Overhead, as well as the Fixed Overhead & Labour costs. In this situation, the assumption of the use of the Job Costing system is appropriate when a good or service is produced as an individual job. The main advantages with the Job Costing system is that: - the units of a certain job are easy to identify; - A lot of the manufacturing costs or the cost of producing a service can be directly traced to a particular job; and - Individual goods or services have very different characteristics and costs. As a result, the use of the Job Costing system was appropriate for establishing the predetermined overhead rate, which is equal to the estimated overhead costs divided by the number of machine hours. Predetermined Overhead Rate= Estimated Overhead Costs / Machine hours. = $425,000 / 2700 = $ 157.41 per Machine hour The calculation of the Direct Materials Cost pool was generated by using the cost of the materials which are used in the machines, which consist of: NCPE-0600 & Resin being $0.10 per kilogram, Kisuma & Flame Retardant being $0.12 per kilogram, as well as Compound Z & Anti-Oxidant being $0.14 per kilogram, which enabled a total Direct materials cost of $512 to be calculated.The Labour costs consisted of 1 manager being paid at $45,000 per year, as well as 6 technicians being paid at $30,000 each, at a total of $180,000.
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