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Unformatted text preview: Cost Accounting Cost Accounting Chat Session 2 Chapter 4: Job Costing Chapter 4: Job Costing Terms to know: Cost object – either fixed or variable and direct or indirect Cost tracing – assignment of direct costs Cost allocation – assignment of indirect costs Cost pool – grouping of costs Cost allocation base – cause and effect relationship (i.e. machine hours for equipment maintenance costs) Chapter 4: Job Costing Chapter 4: Job Costing Job costing: small quantities of distinct products (i.e. custom cabinet maker). Accumulate costs by job. Job costing versus process costing Process costing: large quantities of identical or similar products (i.e. M&M’s). Accumulate costs by batch or department. Chapter 4: Job Costing Chapter 4: Job Costing Seven­step approach: 1. 2. 3. 4. 5. 6. 7. Identify the job that is the chosen cost object Identify and compute the direct costs of the job Select the cost­allocation bases to be used Identify the indirect costs associated with each cost­ allocation base Compute the allocation rate per unit for each cost­ allocation base Compute the indirect costs allocated to the job Compute the total costs of the job Chapter 4: Job Costing Chapter 4: Job Costing Actual costing versus normal costing Actual costing – real­time, exact costs to date, not realistic for indirect costs Normal costing – allocation of indirect costs on an interim bases by applying a budgeted or standard allocation rate (estimate indirect costs) Chapter 4: Job Costing Chapter 4: Job Costing Tracking the flow of costs in a job­costing system Types of costs: direct material direct labor allocated overhead Chapter 4: Job Costing Chapter 4: Job Costing Journal entries: Turn to page 110 in your text— we will review the entries… Chapter 4: Job Costing Chapter 4: Job Costing Copy Corporation uses a job­ costing system. The following debits (credits) appeared in the general ledger account Work­ in­Process Control for June 2007: June 1, balance $ 12,000 June 30: direct materials 40,000 direct mfg. labor 30,000 mfg. oh allocated 27,000 transfer to fin. gds. (100,000) Copy allocated overhead to jobs at a budgeted rate of 90% of direct manufacturing labor costs. Job 100, the only job still in process at the end of June, 2007, has $2,250 of manufacturing overhead allocated to it. Compute the amount of direct materials debited to Job 100. Chapter 4: Job Costing Chapter 4: Job Costing Three steps are used to obtain the answer: ­Compute the June 30 balance of WIP Control: $12,000 + $40,000 + $30,000 + $27,000 ­ $100,000 = $9,000 (this is also the balance of Job 100 as it is the only unfinished job) ­Compute the direct manufacturing labor debited to Job 100: .90DML = $2,250 DML = $2,250 / .90 DML = $2,500 ­Compute the amount of direct materials debited to Job 100: $9,000 ­ $2,250 ­ $2,500 = $4,250 Chapter 4: Job Costing Chapter 4: Job Costing Under or over allocated indirect costs For timing reasons, we estimate costs (actual indirect costs versus allocated indirect costs). At the end of the period, we must reconcile and clear out the balances in Manufacturing Overhead Control and Manufacturing Overhead Allocated accounts. Chapter 4: Job Costing Chapter 4: Job Costing Crystal Company uses a budgeted manufacturing overhead rate based on machine hours. For the month of January, Crystal’s budgeted overhead was $300,000 based on a budgeted allocation base of 10,000 machine hours. Actual overhead incurred amounted to $325,000 and 11,000 actual machine hours were used. How much was the underallocated or overallocated overhead? Budgeted overhead rate: $300,000 / 10,000 hours = $30 per machine hour Actual overhead incurred: $325,000 Overhead allocated (11,000 hours * $30): 330,000 Overallocated overhead: $ 5,000 Chapter 4: Job Costing Chapter 4: Job Costing Three methods to account for over / under allocated amounts: 1. 2. 3. Adjusted­allocation rate – restates to actual costs rather than budgeted costs or ‘corrects’ Proration – spreads overhead among ending work in process, finished goods, and cost of goods sold Write­off to cost of goods sold – total overhead balance is included in cost of goods sold Chapter 17: Process Costing Chapter 17: Process Costing Why do firms use process costing? When a firm produces large quantities of identical or similar (homogeneous) goods or services. Cost differences between units are not significant. Chapter 17: Process Costing Chapter 17: Process Costing Five steps in process costing: 1. 2. 3. 4. 5. Summarize the flow of physical units of output Compute output in terms of equivalent units Compute the equivalent unit costs Summarize total costs to account for Assign total costs to units completed and to ending work­in­process Chapter 17: Process Costing Chapter 17: Process Costing Calculate equivalent units: 10,000 units that are 50% completed equals 5,000 equivalent units Chapter 17: Process Costing Chapter 17: Process Costing Example: no beginning or ending inventory (only 400 units): DM: $32,000/400 = $80 CC: $24,000/400 = $60 Cost per unit: $140 Chapter 17: Process Costing Chapter 17: Process Costing Example: no beginning inventory, 400 units started, 225 units in ending inventory 60% complete: STEP 1 Physical Units WIP, beginning Started during current period To account for Completed & transferred out WIP, ending (100% DM & 60% CC) Accounted for: 0 400 400 175 225 400 STEP 2 Equivalent Units (EU) DM CC 175 225 400 175 135 310 Costs added during month Divided by EU Cost per EU Total cost to account for: Assignment of costs: -Completed & transferred (175 units) -WIP (225 units) Total costs accounted for: $ 50,600.00 $ 32,000.00 $ 18,600.00 400 310 $ 80.00 $ 60.00 $ 140.00 STEP 3 STEP 4 $ 50,600.00 STEP 5 $ 24,500.00 (175 units * $80) + (175 units * $60.00) $ 26,100.00 (225 units * $80) + (135 units * $60.00) $ 50,600.00 Chapter 17: Process Costing Chapter 17: Process Costing FIFO WIP, beginning Started during current period To account for Completed & transferred BEG WIP Completed & transferred out WIP, ending (100% DM & 50% CC) Accounted for: Costs WIP beginning Costs added during month Divided by EU Cost per EU Total cost to account for: Assignment of costs: Beginning WIP Costs -Completed & transferred (90 units CC) -Completed & transferred (175 units) -WIP (DM 100 units & 50 CC) Total costs accounted for: STEP 1 Physical Units 225 275 500 225 175 100 500 $ 26,100.00 $ 36,180.00 STEP 2 Equivalent Units (EU) DM CC 100% 60% 90 175 50 315 175 100 275 $ 19,800.00 $ 16,380.00 275 315 $ 72.00 $ 52.00 $ STEP 5 124.00 STEP 3 STEP 4 $ 62,280.00 $ 26,100.00 $ 4,680.00 ( 0 units * $72) + ( 90 units * $52) $ 21,700.00 (175 units * $72) + (175 units * $52) $ 9,800.00 (100 units * $72) + ( 50 units * $52) $ 62,280.00 Chapter 17: Process Costing Chapter 17: Process Costing Weighted Average WIP, beginning Degree of completion Beg WIP Started during current period To account for Completed & transferred out WIP, ending (100% DM & 50% CC) Accounted for: Costs WIP beginning Costs added during month TOTAL Costs incurred to date Divided by EU Cost per EU Total cost to account for: Assignment of costs: -Completed & transferred (175 units) -WIP (100 units DM & 50 units CC) Total costs accounted for: STEP 1 Physical Units 225 275 500 400 100 500 $ 26,100.00 $ 36,180.00 400 100 500 $ 18,000.00 $ 19,800.00 $ 37,800.00 500 $ 75.60 $ STEP 5 $ 52,000.00 (400 units * $75.60) + (400 units * $54.40) $ 10,280.00 (100 units * $75.60) + (50 units * $54.40) $ 62,280.00 400 50 450 $ 8,100.00 $ 16,380.00 $ 24,480.00 450 $ 54.40 130.00 STEP 2 Equivalent Units (EU) DM CC 100% 60% STEP 3 STEP 4 $ 62,280.00 Chapter 17: Process Costing Chapter 17: Process Costing Transferred in costs – costs incurred from a prior department (i.e. from a mixing department to a baking department. These costs are treated as if they are a separate type of direct material added at the beginning of the process. Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing Traditional costing – uses a single indirect­ cost rate to allocate costs to all products Activity­based costing – a refined costing system that focuses on activities as cost objects and allocates costs on the basis of the activities needed to produce each product or service Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing Product undercosting – when a product consumes a high level of resources but is reported to have a low cost per unit Product overcosting – when a product consumes a low level of resources but is reported to have a high cost per unit Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing Four managers of Crystal Company had dinner together. Below are the details of their bill. Jason put the entire bill on is credit card an billed each of the other managers for the average cost. Diner Entrée Jason 17 Kent 24 Lynn 15 Marci 31 TOTAL Dessert 8 3 4 6 Drinks Total 19 44 10 37 6 25 5 42 $148 Average cost per diner: $148 / 4 = $37 Jason: $7 undercosted; Kent: accurately costed; Lynn: $12 overcosted; and Marci $5 undercosted Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing Refined costing system reduced the use of broad averages for assigning the cost of resources to cost objects and provides better measurement of the cost of indirect resources. Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing Three guidelines for refining a cost system Direct cost tracing Homogeneous indirect cost pools Cause and effect cost­allocation bases Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing 1. 2. 3. 4. 5. 6. 7. Seven­step approach: Identify the products that are the chosen cost objects Identify the direct costs of the products Select the cost allocation bases (activities) to use for allocating indirect costs to the products Identify the indirect costs associated with each cost­allocation base (activity) Compute the rate per unit of each cost­allocation base (activity) used to allocate indirect costs to the products Compute the indirect costs allocated to the products Compute the total costs of the products by adding all direct and indirect costs assigned to the products Chapter 5: Activity­Based Costing Chapter 5: Activity­Based Costing Cost hierarchy categorizes indirect costs into cost pools on the basis of cost drivers or cost allocation bases. Unit level costs (machine operations) Batch level costs (set­up costs) Product sustaining costs (design costs) Facility sustaining costs (building security) Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The manufacturing activities and related data are as follows: Activity Area Material handling Forming & sanding Painting Inspection Packaging Indirect Cost per unit of Cost Allocation Cost­Allocation Base board feet of lumber $ 0.10 direct mfg labor hours 10.00 # of painted sets 0.30 # of finished sets 0.04 # of finished sets 0.20 Two types of wooden blocks were manufactured in September, alphabet cubes and numeric shapes. Quantities and per­set data are as follows: Alphabet Numeric Number of sets produced 12,000 2,000 Direct material costs per set $1.20 $2.00 Board feet of lumber per set 1.50 2.00 Direct mfg labor hours per set 0.05 0.10 Number of sets painted 12,000 none REQUIRED: Calculate the manufacturing cost per set for each product: Direct material cost: 12,000 * $1.20 2,000 * $2.00 Alphabet $14,400 Numeric $4,000 Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The manufacturing activities and related data are as follows: Indirect Cost per unit of Activity Area Cost Allocation Cost­Allocation Base Material handling board feet of lumber $ 0.10 Forming & sanding direct mfg labor hours 10.00 Painting # of painted sets 0.30 Inspection # of finished sets 0.04 Packaging # of finished sets 0.20 Two types of wooden blocks were manufactured in September, alphabet cubes and numeric shapes. Quantities and per­set data are as follows: Alphabet Numeric Number of sets produced 12,000 2,000 Direct material costs per set $1.20 $2.00 Board feet of lumber per set 1.50 2.00 Direct mfg labor hours per set 0.05 0.10 Number of sets painted 12,000 none Indirect costs: Material handling 12,000 * 1.50 * $0.10 2,000 * 2.00 * $0.10 Alphabet 1,800 Numeric 400 Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The manufacturing activities and related data are as follows: Activity Area Material handling Forming & sanding Painting Inspection Packaging Cost Allocation board feet of lumber direct mfg labor hours # of painted sets # of finished sets # of finished sets Indirect Cost per unit of Cost­Allocation Base $ 0.10 10.00 0.30 0.04 0.20 Two types of wooden blocks were manufactured in September, alphabet cubes and numeric shapes. Quantities and per­set data are as follows: Alphabet Numeric Number of sets produced 12,000 2,000 Direct material costs per set $1.20 $2.00 Board feet of lumber per set 1.50 2.00 Direct mfg labor hours per set 0.05 0.10 Number of sets painted 12,000 none Indirect costs: Forming & sanding 12,000 * .05 * $10.00 2,000 * .10 * $10.00 Alphabet 6,000 Numeric 2,000 Hasbro manufactures a variety of wooden toys for young children. The company uses Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The manufacturing activities and related data are as follows: Activity Area Material handling Forming & sanding Painting Inspection Packaging Cost Allocation board feet of lumber direct mfg labor hours # of painted sets # of finished sets # of finished sets Indirect Cost per unit of Cost­Allocation Base $ 0.10 10.00 0.30 0.04 0.20 Two types of wooden blocks were manufactured in September, alphabet cubes and numeric shapes. Quantities and per­set data are as follows: Alphabet Numeric Number of sets produced 12,000 2,000 Direct material costs per set $1.20 $2.00 Board feet of lumber per set 1.50 2.00 Direct mfg labor hours per set 0.05 0.10 Number of sets painted 12,000 none Indirect costs: Painting 12,000 * $0.30 Alphabet 3,600 Numeric Hasbro manufactures a variety of wooden toys for young children. The company uses Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The manufacturing activities and related data are as follows: Indirect Cost per unit of Activity Area Cost Allocation Cost­Allocation Base Material handling board feed of lumber $ 0.10 Forming & sanding direct mfg labor hours 10.00 Painting # of painted sets 0.30 Inspection # of finished sets 0.04 Packaging # of finished sets 0.20 Two types of wooden blocks were manufactured in September, alphabet cubes and numeric shapes. Quantities and per­set data are as follows: Alphabet Numeric Number of sets produced 12,000 2,000 Direct material costs per set $1.20 $2.00 Board feet of lumber per set 1.50 2.00 Direct mfg labor hours per set 0.05 0.10 Number of sets painted 12,000 none Inspection Alphabet 480 Numeric 80 12,000 * $0.04 2,000 * $0.04 Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. Hasbro manufactures a variety of wooden toys for young children. The company uses ABC. The manufacturing activities and related data are as follows: Indirect Cost per unit of Activity Area Cost Allocation Cost­Allocation Base Material handling board feet of lumber $ 0.10 Forming & sanding direct mfg labor hours 10.00 Painting # of painted sets 0.30 Inspection # of finished sets 0.04 Packaging # of finished sets 0.20 Two types of wooden blocks were manufactured in September, alphabet cubes and numeric shapes. Quantities and per­set data are as follows: Alphabet Numeric Number of sets produced 12,000 2,000 Direct material costs per set $1.20 $2.00 Board feet of lumber per set 1.50 2.00 Direct mfg labor hours per set 0.05 0.10 Number of sets painted 12,000 none Packaging 12,000 * $0.20 2,000 * $0.20 Alphabet 2,400 Numeric 400 Direct material cost: 12,000 * $1.20 2,000 * $2.00 Indirect costs: Material handling 12,000 * 1.50 * $0.10 2,000 * 2.00 * $0.10 Forming & sanding 12,000 * .05 * $10.00 2,000 * .10 * $10.00 Painting 12,000 * $0.30 Inspection 12,000 * $0.04 2,000 * $0.04 Packaging 12,000 * $0.20 2,000 * $0.20 Total Manufacturing Costs: Divided by # of sets produced: Manufacturing cost per set: Alphabet Alphabet $14,400 Numeric $4,000 1,800 6,000 3,600 480 2,400 $28,680 12,000 $ 2.39 400 2,000 80 400 ______ $6,880 2,000 $ 3.44 ...
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This note was uploaded on 10/26/2009 for the course ACTP 5004 taught by Professor Montesarchio during the Summer '08 term at Nova Southeastern University.

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