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Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Assigning Cost of Capacity
Curt’s Casting manufactures metal parts in a large manufacturing facility. Curt’s customers order 100,000 tons of castings each quarter. The facility has a practical capacity of 150,000 tons. Curt leased the current facility because it was more convenient than another new facility that had a capacity of 100,000 tons. The annual cost of the facility is $600,000. The variable cost of a casting is $4.
Required
a.What cost per casting should the cost system report?
b.Given your answer to requirement (a) is there any cost of excess capacity? If yes, what is the cost of excess capacity and how should it be reported? If no, why not?
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Activity based costing
Activity based costing is modern method used to assign overhead cost to a product or department or to a job. Under this method the cost are allocated based on the activity volume consumed by each department or product. Activity based costing uses multiple activities related to cost and based on these activities cost is allocated.
Formula to calculate activity rate under activity based costing.
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