Decentralization 2021 Part II.pdf - Assessment 4 COST...

COST ACCOUNTING ©H. LIN
Assessment 4

COST ACCOUNTING ©H. LIN
Assessment 4

COST ACCOUNTING ©H. LIN
Assessment 4

COST ACCOUNTING ©H. LIN
Assessment 4

COST ACCOUNTING ©H. LIN

COST ACCOUNTING ©H. LIN
Suppose we compare the actual costs to expected costs (as standard costs or applied costs).

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(b) Issuance of materials into production
Dr. WIP 248,000
Dr. MUV 6,400
Cr. Materials 254,400
3 (a) Purchase of materials
Dr. Materials 254,400
Dr. MPV 9,472
Cr. Accounts Payable 263,872
(c) Incurrent of direct labor costs
Dr. WIP 198,400
Dr. LEV 5,952
Cr. Wages Payable 204,352
(d) Application of VOH to production
Dr. WIP 99,200
Cr. VOH control 99,200
(e) Application of FOH to production
Dr. WIP 74,400
Cr. FOH control 74,400
(f) transfer to FG inventory (the amount
should be the total standard costs, $25 x
24,800)
Dr. FG 620,000
Cr. WIP 620,000

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(k) Closure of VOH control account
Dr. VOH Spending variance 5,164
Dr. VOH Efficiency variance 2,976
Cr. VOH control 8,140
Dr. COGS 8,140
Cr. VOH Spending 5,164
Cr. VOH Efficiency 2,976
Combine the two entries above:
Dr. COGS 8,140
Cr. VOH control 8,140
(j) closure of LEV
Dr. COGS 5,952
Cr. LEV 5,952
(g) sale of goods
Dr. COGS 620,000
Cr. FG 620,000
(h) closure of MPV
Dr. COGS 9,472
Cr. MPV 9,472
(i) closure of MUV
Dr. COGS 6,400
Cr. MUV 6,400

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*Note: After (k) and (l), the VOH control
and the FOH control accounts should have
zero balance.
(l) Closure of FOH control account
Dr. FOH Volume variance 600
Dr. FOH control 498
Cr. FOH Spending variance 1,098
Dr. FOH Spending variance 1,098
Cr. FOH Volume variance 600
Cr. COGS 498
Combine the two entries above:
Dr. FOH control 498
Cr. COGS 498

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COST ACCOUNTING ©H. LIN

CHAPTER 10
PART II: INCENTIVES AND TRANSFER PRICING
 HOMEWORK 08 IS DUE ON 11/10 (WEDNESDAY).

Plan
• EVA
• Incentives and performance evaluation of managers
• Transfer pricing
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Recap
• To evaluate the performance of an investment center, we may use
• Return on Investment (ROI)
• High comparability
• but induce under-investment problem
• Residual income (RI)
• resolve under-investment problem
• Low comparability
• Economic value added
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(5) Using Economic Value Added (EVA
©
)
• EVA looks at a division’s RI through the eyes of the company’s primary
stakeholders: investors and long-term creditors.
• EVA = After-tax Operating Income – Total annual Cost of Capital
• Total annual cost of capital = WACC x Total Capital Employed
• WACC = weighted average cost of capital
• Total Capital Employed can be average operating assets (or Average assets)
• Interpretations:
• If EVA is positive, the company is creating wealth.
• If EVA is negative, the company is destroying wealth.
COST ACCOUNTING ©H. LIN

COST ACCOUNTING ©H. LIN