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What's the total cost function?
Total Cost = Fixed Cost + (Variable Rate x Units of Output)
Surprise!
Surprise!
What's the formula for the predetermined overhead rate?
Predetermined Overhead Rate = Estimated Annual Overhead / Estimated Annual Activity Level
Predetermined Overhead Rate / Estimated Annual Activity Level
What's the formula for Estimated Annual Overhead
Is the sequential method or the direct method more accurate?
Sequential Method
Explain underapplied and overpplied
Underapplied = Actual > Applied
Overapplied = Actual < Applied
Explain the meanings and formula differences between actual costing and normal costing.
Actual Costing: All components are actual
Total Cost = Actual DM + Actual DL + Actual OH
Normal Costing: OH is using applied; normal here means under normally expected situations
Total Cost = Actual DM + Actual DL + Applied OH
Explain absorption and variable costing
Absorption costing absorbs all costs, include fixed costs
Variable costs only take variable components, which put fixed costs into period costs.
Name two knowledge point that you think is important for Chapter 3 & 4
Free Response
Challenge! Sing a song with lyrics that include accounting terms or words!
Free Response
Explain the difference between the sequential method and the direct method.
Direct Method:
○ Simple.
It allocates service department costs only to production departments, ignoring services provided to other service departments.
Example: If the HR department supports both Production and IT, the direct method assigns HR costs only to Production, skipping IT.
Sequential (Step-Down) Method:
○ ○
○
More detailed and accurate.
It allocates service department costs to both other service departments and production departments, but in a specific order (sequence).
Example: HR costs are first assigned to IT, then IT’s total cost (including HR's portion) is allocated to Production.
UC Co. rents production equipment. They got the following data for the past four months:
Month Equipment Cost Machine Hours
January $9,500 400
February $12,000 700
March $14,500 1,000
April $11,000 600
Using the high–low method, calculate the fixed cost of renting the equipment.
Fixed cost=9,500−(400×8.33) =9,500−3,332= $6,167
In the most recent quarter, the company produced 1,215 earbuds and sold 900 of them at a price of $85 each.
Production costs:
Direct Materials: $15 per earbud
Direct Labor: $7 per earbud
Variable Manufacturing Overhead: $5 per earbud
Fixed Manufacturing Overhead: $4860 for the quarter
Find the COGS under Absorption Costing
Fixed overhead per unit= 4860/ 1215 = 4
Total cost per unit=15+7+5+4=31
COGS = 900×31= 27,900
A bakery estimated that overhead costs would be $12,000 and direct labor hours would be 2,000 hours for baking cupcakes. At the end of the year, the bakery actually incurred $14,500 in overhead costs and used 2,500 direct labor hours.
What is the overhead variance?
Overhead Variance=Actual Overhead−Applied Overhead=14,500−15,000=−500
500 Overapplied