Vocabulary
Used for products which are indistinguishable from each other regardless of job order, like coca-cola
Process costing
Conversion Cost
Direct Labor + Manufacturing Overhead
Where do the units come from and where do they go?
Beginning Inventory + Started = Completed/Transferred + Ending Inventory
If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $________.
7,800
Cost Allocation Base
Is a measurable cause or driver of performing activity (what causes a cost to be incurred)
Similar products in a large quantity use what type of costing?
Process costing
PDOHR/POHR
Total MOH/Cost Driver
–Beginning work in process, 2,000 units
–Units transferred out, 42,000
-Units in ending work in process, 15,000, which are 80% complete for conversion costs
Compute equivalent units of production for both materials and conversion costs.
DM = 57,000
CC = 54,000
Equivalent Units of Production
Partial units and consolidate them into whole units
T/F We can't trace costs to cost objects under ABC costing
True. we can’t directly trace, we look at the driving activities [cause & effect relationship]
Cost per unit of activity
= $ Cost pool ESTIMATE/ # Cost drivers ESTIMATE
Beginning WIP: 2,000 pounds (60% processed)
Started: 36,000 pounds were started
Units completed and transferred out: 34,000 pounds were transferred out and ending WIP was 70% processed.
Calculate the equivalents units for Compounding Department for the month.
DM = 38,000
CC = 36,800
Activity Based Management
Identification and selection of activities to maximize the value of activities while minimizing their cost from the perspective of the final customers. The activity is "managed" for efficient use and value to customer.
Where do completed goods go to under Process Costing? Hint: Same as Job Order
Completed go to Inventory (B/S), then when sold COGS (I/S)
cost allocation rate for each cost pool
divide the total cost pool by the total cost driver
Total sales $100,000
Total cost of meat $ 85,000
Number of returns 50
Number of visits 25
Number of calls 120
Cost per return $100
Cost per visit $150
Cost per call $30
Based on this information, should Quality Meats drop this customer?
Sales − cost of sales − (cost of returns + cost of visits + cost of calls) = customer profit $100,000 − $85,000 − (50*$100 + 25*$150 + 120*$30) = $2,650. Keep this profitable customer.
Processing Department
it is the organizational unit WHERE work is performed on product and DM, DL and MOH is applied.
Why is ABC relevant today?
increase in Overhead (automation) and decrease in Direct Labor intensive
Cost of Goods Manufactured
Total Completed & Transferred DM + Conversion Costs
Chairs Tables Total Cost
Machine setups 200 600 $48,000
Inspections 250 470 $72,000
Labor hours 2,600 2,400
•What is the total amount of overhead costs assigned to the chairs using the traditional costing method?
Single overhead rate
($48,000 + $72,000) ÷ 5,000 = $24 per labor hour
Chairs: 2,600 × $24 = $62,400