chapter5 week4

# chapter5 week4 - Activity-Based Costing and Activity-Based...

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5 - 1 5 - 1 Activity-Based Costing and Activity-Based Management Chapter 5 Accy211: Management AccountingII 5 - 2 Learning Objective 1 Explain undercosting and overcosting of products and services. 5 - 3 Undercosting and Overcosting Example Jose, Roberta, and Nancy order separate items for lunch. Jose’s order amounts to \$14 Roberta consumed 30 Nancy’s order is 16 Total \$60 What is the average cost per lunch? 5 - 4 Undercosting and Overcosting Example \$60 ÷ 3 = \$20 Jose and Nancy are overcosted. Roberta is undercosted. 5 - 5 Learning Objective 2 Present three guidelines for refining a costing system. 5 - 6 Existing Single Indirect- Cost Pool System Example Kole Corporation manufactures a normal lens (NL) and a complex lens (CL). Kole currently uses a single indirect-cost rate job costing system. Cost objects: 80,000 (NL) and 20,000 (CL).

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5 - 2 5 - 7 Existing Single Indirect- Cost Pool System Example Normal Lenses (NL) Direct materials \$1,520,000 Direct mfg. labor 800,000 Total direct costs \$2,320,000 Direct cost per unit: \$2,320,000 ÷ 80,000 = \$29 5 - 8 Existing Single Indirect- Cost Pool System Example Complex Lenses (CL) Direct materials \$ 920,000 Direct mfg. labor 260,000 Total direct costs \$1,180,000 Direct cost per unit: \$1,180,000 ÷ 20,000 = \$59 5 - 9 Existing Single Indirect- Cost Pool System Example All Indirect Costs \$2,900,000 50,000 Direct Manufacturing Labor-Hours INDIRECT-COST POLL INDIRECT COST-ALLOCATION BASE \$58 per Direct Manufacturing Labor-Hour 5 - 10 Existing Single Indirect- Cost Pool System Example Indirect Costs Direct Costs COST OBJECT: NL AND CL LENSES DIRECT COSTS Direct Materials Direct Manufacturing Labor 5 - 11 Existing Single Indirect- Cost Pool System Example Kole uses 36,000 direct manufacturing labor-hours to make NL and 14,000 direct manufacturing labor-hours to make CL. How much indirect costs are allocated to each product? 5 - 12 Existing Single Indirect- Cost Pool System Example NL: 36,000 × \$58 = \$2,088,000 CL: 14,000 × \$58 = \$812,000 What is the total cost of normal lenses? Direct costs \$2,320,000 + Allocated costs \$2,088,000 = \$4,408,000 What is the cost per unit? \$4,408,000 ÷ 80,000 = \$55.10
5 - 3 5 - 13 Existing Single Indirect- Cost Pool System Example What is the total cost of complex lenses? Direct costs \$1,180,000 + Allocated costs \$812,000 = \$1,992,000 What is the cost per unit? \$1,992,000 ÷ 20,000 = \$99.60 5 - 14 Existing Single Indirect- Cost Pool System Example Normal lenses sell for \$60 each and complex lenses for \$142 each. Normal Complex Revenue \$60.00 \$142.00 Cost 55.10 99.60 Income \$ 4.90 \$ 42.40 Margin 8.2% 29.9% 5 - 15 Refining a Costing System Direct-cost tracing Indirect-cost pools Cost-allocation basis 5 - 16 Refining a Costing System 1. Design of Products and Process The Design Department designs the molds and defines processes needed (details of the manufacturing operations). 5 - 17

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chapter5 week4 - Activity-Based Costing and Activity-Based...

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