ch04tc - COST MANAGEMENT 1 Accounting & Control...

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Unformatted text preview: COST MANAGEMENT 1 Accounting & Control Hansen▪Mowen▪Guan Chapter 4 Activity-Based Costing 2 Study Objectives 1. Describe the basics of plantwide and departmental overhead costing. 2. Explain why plantwide and departmental overhead costing may not be accurate. 3. Provide a detailed description of activity- based product costing. 4. Explain how the activity-based costing systems can be simplified. 3 Functional-Based Product Costing Model 4 Functional-Based Product Costing Overhead costs are assigned to products using predetermined overhead rates . Budgeted Budgeted Overhead = annual annual rate overhead driver level c Actual Applied Overhead = driver overhead rate usage c 5 Unit-level Drivers • Unit-level drivers are factors that measure the demands placed on unit-level activities by products. • Unit-level activities are activities performed each and every time a unit of product is produced. • Common Unit-level drivers are:- Units Produced- Direct Labor Hours- Direct Labor Dollars- Machine Hours- Direct Materials Dollars 6 Unit-level Drivers Use of only unit-based drivers to assign overhead costs to products assumes that all overhead consumed by products is proportional to the number of units produced. To the extent this assumption is valid, functional-based costing systems can produce accurate product cost information. 7 Overhead Application: Plantwide Rates Budgeted overhead $360,000 Expected/Budgeted activity (in direct labor hours) 120,000 Predetermined overhead rate 3.00 $ Pocket calculator Currency translator Actual activity (in direct labor hours) 40,000 60,000 Predetermined overhead rate $3.00 $3.00 Overhead applied to production $120,000 $180,000 Units produced 80,000 90,000 Overhead per unit $1.50 $2.00 Suncal, Inc. 8 Overhead Variances Total overhead assigned to actual production at any point in time is called applied overhead. • Overapplied overhead – Applied overhead > actual overhead • Underapplied overhead – Applied overhead < actual overhead 9 Overhead Variances M anufac turing O verhead Control S upervis ors S alary (1) 70,000 70,000 (1) (2) 30,000 (3) 20,000 Utilities Charges (4) 200,000 30,000 (2) 320,000 A c c um ulated Deprec iation - P lant...
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This note was uploaded on 02/08/2010 for the course ACTG 3000 taught by Professor C during the Spring '10 term at Oregon State.

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ch04tc - COST MANAGEMENT 1 Accounting & Control...

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