Cost Distortion
What is cost distortion?
Under/Overallocation of MOH
What is allocating MOH?
Assign overhead costs to WIP
What is ABC?
Activity Based Costing
What is unit level cost?
Incurred with each unit produced
What is Prevention costs?
incurred to avoid producing poor-quality goods or services
Why does cost distortion happen?
Occurs when some products are over-costed while other products are under-costed by the cost allocation system.
How many steps in allocation process?
5
Is ABC more accurate?
Yes
3 examples of common waste
defects, overproduction, waiting, not utilizing ppl to full potentil, transportation, movement, inventory, excess processing
What is incurred to detect poor-quality goods or services
Appraisal Costs
What is overallocation?
Too much MOH
Normal Cost= DL+DM+
Allocated MOH
Is ABC less work?
No, it's more
What cost is incurred with each batch regardless of units produced?
Batch level
List 4 quality Costs
Prevention, Appraisal, Internal, Extrenal
What do we do when the Actual is different than allocated?
Adjust COGS
2 examples of cost drivers
Labor hours, Machine hours
Does ABC change the total amount of overhead costs?
No, ABC redistributes overhead costs to products in a more accurate manner
What is JIT?
focuses on purchasing raw materials just in time for production and complete goods just in time for delivery
What is Inspection of final products or services?
Appraisal
What account changes to reconcile MOH?
COGS
POHR Equation
Estimated MOH/ Cost Driver
Steps:
Estimate MOH, choose cost driver, calculate POHR, Allocate, Reconcile
What level is plant depreciation?
Facility Level
Example of external failure?
•Lost profits from lost customers
•Warranty costs
•Service costs at customer sites