Midwest Industries Ltd. is a manufacturing company in Central Alberta that produces a wide range of attachments to heavy equipment. You have been hired by the CFO of Midwest as a controller into their bucket attachment division, these buckets are generally custom made and are attached onto a variety of loaders and excavators. The CFO is wondering about various costing systems that could potentially be used and asks for your input. The CFO is particularly curious about activity-based costing, job costing & process costing. She is also wondering if they should be using actual or budgeted costs in their costing system & what the benefit is to either. The CFO is currently unsure what system is in use & unfortunately due to an untimely death of the predecessor controller, you are unable to interview him for advice. The CFO has indicated that she is very worried about under costing there products as they have numerous departments and want to make sure they are pricing everything appropriately.

Through research you determine the following about Midwest Industries

• The typical job for Midwest is large in nature and customizable. Although there is a basic shell design for each bucket, customers choose different types of bottom (tapered or flat), bucket size & material (Light-weight, industrial strength, etc.). Midwest is willing to consider any modification in the design process
• Costs are categorized as either direct or indirect/overhead or period within the specific manufacturing facility. There is an offsite head office, that you work at. The company uses FIFO for their direct materials.
• The record keeping within the department is strong and the staff has indicated that if required they could track the overhead costs more specifically.
• In the fall Midwest undertakes a significant budgeting process and budgets all major costs, including direct labour, direct materials & various individual overhead costs

1. Job B115
2. Sales Price $68000
3. Direct Manufacturing Labour $15000
4. Direct Materials $24000
5. Total Budgeted Manufacturing Overhead Costs $14,910,000
6. Direct Budgeted Manufacturing Machine Hours 21,000
7. Actual Machine Hours Job B115 30 hours
8. Budgeted Machine Hours Job B115 32 hours

Required:

Prepare a memo for the CFO regarding costing at Midwest Industries. The CFO is very unfamiliar with costing and therefore would like a summary of the three types of costing mentioned above (Job, Activity Based & Process) including the pros and cons of each type, and what type of organizations typically use the different types. Discuss the uses of actual or budgets costs in this process. As well the difference between direct, overhead & period costs.

To support your analysis, a summary calculation for the CFO for job B115. Please prepare the calculation under job costing. Additionally, explain to the CFO what additional information is needed for the job to be costed under Activity based costing & which category of expenses are different.