Session 04 Solutions

Session 04 Solutions - Why use normal costing (instead of...

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Why use normal costing (instead of actual costing)? The actual indirect-cost rate is only known at the end of the period. Thus, it’s available “too late” to be used to incorporate indirect costs into the decision-making process. To take indirect costs into account in the decision-making process. 1. 10,000 = 1.25/hr 8,000 10,000 = 1.25/hr 8,000 Budgeted Rate Budgeted Utilization (maintenance hours) 2. 4,000 4,000 Dept. B 4,000 4,000 Dept. A $10,000 $10,000 Budgeted Indirect Fixed Costs (e.g. maintenance) Month #2 Month #1 To mitigate gaming by department (or business unit) managers: (Particularly, when the cost data is used to evaluate the performance of department manager.)
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In Month #1, the costs incurred and utilization of the resources were as planned for both departments. However, in Month #2, because other costs in Dept. B were higher than expected, the manager of the department decided to reduce his/her utilization of the shared resources from 4,000 hrs to 1,000 hrs. 1,000
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This note was uploaded on 10/06/2010 for the course FNCE 100 taught by Professor Jaffe during the Spring '10 term at UNC Asheville.

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Session 04 Solutions - Why use normal costing (instead of...

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