Chapter 3 PPT - Cost Accounting Foundations and Evolutions...

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Chapter 3 Predetermined Overhead Rates, Flexible Budgets, and Absorption/Variable Costing Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn
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Learning Objectives (1 of 3) Explain why and how overhead costs are allocated to products and services Describe what causes underapplied or overapplied overhead and how is it treated at the end of the period
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Learning Objectives (2 of 3) Explain how different capacity measures affect predetermined overhead rates Explain how managers use flexible budgets to set predetermined overhead rates
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Learning Objectives (3 of 3) Contrast absorption and variable costing Describe how changes in sales or production levels affect net income under absorption and variable costing
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Allocating Overhead Actual vs. Normal Product Cost Direct Materials Direct Labor Overhead Actual Cost System Actual Actual Actual Normal Cost System Actual Actual Predetermined Overhead Rate
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Predetermined Overhead Rate Allows overhead to be assigned during the period, fulfilling the matching principle Allows managers to be aware of product, product line, customer, and vendor profitability
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Predetermined Overhead Rate A budgeted, constant charge per unit of activity used to assign overhead to production or services
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Predetermined Overhead Rate Total budgeted overhead Activity level (Volume) = Predetermined Overhead Rate $100,000 5,000 DL Hours = $20 per DL Hours
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The Activity Level (The Denominator) Relationship between the overhead cost and the activity production volume direct labor hours direct labor cost machine hours number of purchase orders or parts machine setups material handling time
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Predetermined Overhead Rate Total budgeted variable overhead Activity level (Volume) $375,000 50,000 machine hours = $7.50 per machine hour Total budgeted fixed overhead Activity level (Volume) $630,000 50,000 machine hours = $12.60 per machine hour
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This note was uploaded on 03/23/2010 for the course ACC_ 03 taught by Professor Zeegal during the Fall '10 term at Missouri State University-Springfield.

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Chapter 3 PPT - Cost Accounting Foundations and Evolutions...

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