Question

Friedman Company uses JIT manufacturing. There are several manufacturing cells set up within one of its factories. One of the cells makes stands for flat-screen televisions. The cost of produc- tion for the month of April is given below. Cell labor Direct materials Overhead Total

During May, 30,000 stands were produced and sold. Required: $ 60,000 150,000 120,000 $330,000

1. Explain why process costing can be used for computing the cost of production for the stands.

2. I already know that the cost per stand is $11 per unit

3. Explain how activity-based costing can be used to determine the overhead assigned to the cells

Answer 1

1) When a stand for a flat screen is made, it undergoes several processes such as moulding, polishinh etc. The stands are not unique in nature. They are mass produced items. Thus, an even distribution of cost using process costing will be accurate.

2) Calculation of $11 p.u.=$330000/30000 units=$11

3) There are various activities performed during manufacturing such as set up, inspection etc. The activities which are similar to various cells are cost drivers. Thus, accumulation of cost according to activity shall be refined and accurate. Thus, activity based costing to assign overhead to cells will be appropriate.