acc200finalexamstudyguidepart2

acc200finalexamstudyguidepart2 - Activity-based costing...

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Activity-based costing (ABC) **Remember job order costing is for custom products (or “jobs”) that don’t have the same cost in which applied overhead is assigned to jobs using a SINGLE cost driver. Also remember that process costing is for production of one product or products that are very similar** Activity-based costing applies overhead using multiple cost drivers called “activities”. Overhead costs in ABC include both manufacturing AND non-manufacturing costs, unlike job order costing. Step One: Identify activities and the overhead costs that are associated with each activity Some typical activities can include: taking orders over the phone, shipping orders, quality control, etc. Step Two: After activities are identified, company should decide overhead level for each activity Unit-level: overhead costs that go up as each individual unit is produced , ex: factory supplies, depreciation Product-level: overhead costs that go up as each type of product is produced, ex: Research & Development costs, advertising a certain product Batch-level: overhead costs that are incurred every time a batch is delivered or brought to the production line , ex: machine setups Facility-level: overhead costs used for the organization as a whole, ex: answering phones Example: Cuddly and Co. produces gigantic teddy bears. Direct labor and materials are easily traceable to each individual bear made, however overhead costs aren’t as easily traced. Cuddly and Co. plans to start using ABC as it wants to get a better look at the allocation of its overhead costs. Activity cost pool 1. Assembling teddy bears 2. Processing Orders 3. Customer Support In addition, Cuddly and Co. has the following overhead costs (always given to you in this class): Manufacturing Overhead $200,000 100,000 Total OH $300,000
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Interviews with employees of Cuddly and Co. were conducted and the following are allocations for percentages of time spent on the 3 activity cost pools: Assembling Processing Customer Support Manufacturing OH 60% 25% 15% Selling & Admin OH 5% 60% 35% What is this saying? 60% of Manufacturing OH comes from assembling teddy bears, 25% of Manufacturing OH comes from processing orders, and 15% of manufacturing OH comes from customer support. Likewise, 5% of Selling and Admin OH costs come from assembling the teddy bears, 60% comes from processing orders, and 35% comes from customer support. Activity Cost Pools Assembling Processing Customer Support Total Manufacturing OH $120,000* $50,000** $30,000*** $200,000 + 5,000 # + 60,000 ## + 35,000 ### + 100,000 Total Cost $125,000 $110,000 $65,000 $300,000 *$200,000 x 60% # 100,000 x 5% **200,000 x 25% ## 100,000 x 60% *** 200,000 x 15% ### 100,000 x 35% This is just an expansion of information we already knew! We were given:
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acc200finalexamstudyguidepart2 - Activity-based costing...

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