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
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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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