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B.3. Forecasting Techniques Essay 1

Rosewood currently uses a job costing system but would need to switch to process costing for mass producing school uniforms. Full absorption costing includes both variable and fixed overhead costs in inventory valuation, while direct costing only includes variable costs. The learning curve concept means that per-unit costs decrease with cumulative production as skills and methods improve. For an 80% learning curve, the estimated direct labor cost per uniform after 8,000 units is $5.88.

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40 views7 pages

B.3. Forecasting Techniques Essay 1

Rosewood currently uses a job costing system but would need to switch to process costing for mass producing school uniforms. Full absorption costing includes both variable and fixed overhead costs in inventory valuation, while direct costing only includes variable costs. The learning curve concept means that per-unit costs decrease with cumulative production as skills and methods improve. For an 80% learning curve, the estimated direct labor cost per uniform after 8,000 units is $5.88.

Uploaded by

Kondreddi Saku
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1- Define and explain the job costing system Rosewood currently uses.

2- Identify what costing system would be most suitable if Rosewood begins mass
producing school uniforms. Explain your answer.
3- For Job 431, calculate the cost per unit by using full absorption costing. Show your
calculations.
4- Identify and explain the major difference between full absorption costing and direct
costing.
5- Define and explain the concept of the learning curve.
6- After completing 8,000 uniforms, what is the estimated direct labor cost per uniform?
Show your calculations.
1-

Explanation

Rosewood's current job order costing system is used for custom, unique production, where the
costs of each job can be traced directly to the unique order.
2-

Explanation

A job order system would not be adequate for costing in a mass production environment. When
producing large quantities of mass-produced homogenous products, the appropriate costing
system is process costing. This change in Rosewood's business would completely change its
costing system.
3-

Explanation
Work-in-process beginning balance $33,000
Direct materials 3,000
Direct labor 7,000 ($7 × 1,000 hours)
Manufacturing overhead 3,000 ($3 × 1,000 hours)
Total job cost $46,000
$46,000 / 2,000 units = $23 per unit
4-

Explanation

Variable costing in which the cost assigned to a product includes only the cost of inputs that vary
directly with the number of units produced. Only the directly variable product costs are charged
to inventory, such as direct materials, direct labor, and variable manufacturing overhead costs.
5-

Explanation

Learning curve is a mathematical expression of the phenomenon that incremental unit costs to
produce decrease as managers and labor gain experience from practice and as better methods are
developed.
6-

Explanation

80 percent learning curve:

Units Cumulative Avg. per Unit Cumulative Total Hrs. Time on Most Recent
2,000 1.75* 3,500 hrs. 3,500 hrs.
4,000 1.40** 5,600 2,100
8,000 1.12*** 8,960 3,3601
* 3,500 hours ÷ 2000 units = 1.75 hrs. per unit

** 1.75 × 80% = 1.4

***1.4 × 80% = 1.12

8,960 – 5,600 = 3,360 hours spent on last 4,000 units


1

3,360 hours ÷ 4,000 units = 0.84 hours per unit × $7 per hour = $5.88 direct labor budget
per unit

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