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COSTING PROCEDURES FOR RIO GOLD LTD Rio Gold Ltd produces standard dining-room tables and chairs on a production line that includes...
COSTING PROCEDURES FOR RIO GOLD LTD
Rio Gold Ltd produces standard dining-room tables and chairs on a production line that includes a cutting department, a shaping department, a construction department and a finishing department. This dining-room furniture is sold to mid-priced retailers around the country. They are a standard product and over 25 000 dining-room settings are produced and sold each year.
Rio Gold Ltd also takes special one-off orders for custom-built dining-room settings that are produced to the customer’s specifications in consultation with the company’s master carpenter. This furniture is hand-finished and French-polished, and is not made on the company’s production line.
1. Should the company use the same costing procedures for materials used in the production of both products? Would this always be necessary?
2. Why would the company use a predetermined overhead application rate for costing the production of custom-built dining-room settings?
3. When would it be necessary to use a predetermined overhead application rate in costing the production of the standard dining-room settings? Would there be some circumstances where actual overhead costs could be used rather than a predetermined overhead application rate? Explain.