EMBA 5403 Costing Systemsjnjsnjdn

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Costing Systems

EMBA 5403

Fall 2010


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Fall 2010 Mugan 2/37

Available costing systems

Absorption costing Actual Costing

ormal Costing Stan!ar! Costing

"ariable costing Actual Costing

ormal Costing

Stan!ar! Costing


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Costing systems

Costcomponent

Actual ormal Stan!ar!

material Actual Actual Stan!ar!

labor cost Actual Actual Stan!ar!

Manu#acturing

$ver%ea!&

"ariable

Actual Applie! Stan!ar!

Manu#acturing

$ver%ea!&Fi'e!

Actual Applie! Stan!ar!

Applie!


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"ariance

(i##erences bet)een t%e costsaccor!ing to t%e costing system use!an! actual amounts

Actual amounts are re#lecte! in t%e#inancial statements


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Absorption Costing

Absorption costing allocates

variable and fixedoverhead costs to products

Finished GoodsInventory

Valuation

Cost of GoodsSold

Cost of GoodsManufactured


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Fall 2010 Mugan !/37

*ro!uct Costing *roce!uresin $rgani+ations

"rocess#osting

$ob%order #osting

Distinct jobs or batches of units.& Costs accumulated separately by job.

,Typical job order cost applications:, Special-order printing, Building construction

, Also used in service industry, Hospitals

, Law firms


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*ro!uct Costing *roce!uresin $rgani+ations

"rocess#osting

$ob%order #osting

Typical process cost applications

!etrochemical refinery

!aint manufacturer

!aper mill


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Fall 2010 Mugan '/37

-ob&$r!er Costing

T r a c e d d i r e c t l y t o e a c h j o b

T r a c e d d

i r e c t l y

t o e a c h

j o b

TheThe

"ob"ob

TheThe

"ob"ob

Direct

labor

Directlabor

Direct

materials

Direct

materials

Manufacturin#

overhead $M%V&'

(pplied $added' to

each job usin# a

predeterminedrate


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Fall 2010 Mugan (/37

-ob&$r!er Costing

!art of the job cost

Materials)e*uisition and

Time tic+ets

Directmaterials

andlabor

Indirectmaterialsand labor

Manufacturin#%verheadControl(ccount

)a, materialscould be used asdirect or indirect

product cost.

(n employee-stime may be either direct or indirect.


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-ob&$r!er Costing

,a#es

"ob%rderCost

Sheets

Materialusa#e

%ther (ctual %&Char#es

Indirect

Materials

Indirect

/abor

(pplied

%verhead

Manufacturin#%verheadControl

(ccount


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-ob&$r!er Cost S%eet


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-ob&$r!er System Cost Flo)s

Direct /abor

Mf#. %verhead

Salaries and0a#es !ayable

0or+in!rocess$"ob Cost Sheet'Direct

Materials

%verhead(pplied to

0or+ in!rocess

Indirect/abor

Direct /abor

%verhead (pplied

Indirect/abor

Indirect Materials

Actual Applied If actual and appliedmanufacturin# overheadare not e*ual1 a yearendadjustment is re*uired.

If actual and appliedmanufacturin# overheadare not e*ual1 a yearendadjustment is re*uired.


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Allocation *rocess

(e#ine t%e cost ob.ects/

Accumulate in!irect costs in cost pools/

C%oose an allocation base/Estimate an application rate/

Allocate in!irect costs base! on use o#

t%e allocation base


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$ver& an! n!erabsorbe!$ver%ea!

$verabsorbe! over%ea!

n!erabsorbe! over%ea!

$verabsorbe! over%ea!

n!erabsorbe! over%ea!


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Fall 2010 Mugan 1!/37

$ver& an! n!erabsorbe!$ver%ea!

S%/2TI%3(pplied %verhead 4 !%&) 5 (ctual Direct /abor &ours

(pplied %verhead 4 T/ 6.77 per D/& 5 8771777 D/& 4 T/ 6771777

S%/2TI%3(pplied %verhead 4 !%&) 5 (ctual Direct /abor &ours

(pplied %verhead 4 T/ 6.77 per D/& 5 8771777 D/& 4 T/ 6771777

s actual over%ea! #or t%e year )as 67508000 an!a total o# 1008000 !irect labor %ours )ere )or9e!/

sing s pre!etermine! over%ea! rate o#

6 7/00 per !irect labor %our8 %o) muc% over%ea!)as applie! to s .obs !uring t%e year:


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Accounting #or $ver& an!n!erabsorbe! $ver%ea!

%ree basic approac%es

*rorate among )or9&in&process8 #inis%e! goo!s8 an! cost o# goo!ssol!/

A!.ust cost o# goo!s sol!/

;ecalculate t%e application rate an!

apply to all t%e .obs !uring t%eperio!/

%ree basic approac%es

*rorate among )or9&in&process8 #inis%e! goo!s8 an! cost o# goo!s

sol!/

A!.ust cost o# goo!s sol!/

;ecalculate t%e application rate an!

apply to all t%e .obs !uring t%eperio!/


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Fall 2010 Mugan 1'/37

Accounting #or $ver& an!n!erabsorbe! $ver%ea!

(lternative 8 (lternative 9

If Manufacturin# Close to Cost

%verhead is . . . of Goods Sold (llocation

23D:)(;S%);:D I3C):(S: I3C):(S:

Cost of Goods Sold 0or+in!rocess

$(pplied %& is less Finished Goods

than actual %&' Cost of Goods Sold

%V:)(;S%);:D D:C):(S: D:C):(S:

Cost of Goods Sold 0or+in!rocess

$(pplied %& is #reater Finished Goods

than actual %&' Cost of Goods Sold


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Fall 2010 Mugan 1(/37

Allocation Base

!roducts

(pplication)ate

If overheadcosts are

accumulated ina sin#le costpool and

allocated usin#

a sin#leallocation base.

If overheadcosts are

accumulated ina sin#le costpool and

allocated usin#a sin#le

allocation base.

Sin#le %verheadCost !ool

Sin#le %verheadCost !ool


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Many companies use (ctivity ;ased Costin# ,here multiple costpools and a different allocation base for each cost pool.

Many companies use (ctivity ;ased Costin# ,here multiple costpools and a different allocation base for each cost pool.

!roducts

(pplication

)ate (

%verheadCost !ool

(

%verheadCost !ool

(

%verheadCost !ool

;

%verheadCost !ool

;

%verheadCost !ool

C

%verheadCost !ool

C

(pplication

)ate ;

(pplication

)ate C

Multiple Allocation Bases


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is onemet%o! o# using multiple allocationbases/

ABC an! Multiple AllocationBases


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Multistage Allocation *rocesses

%verheadCost !ool 8

%verheadCost !ool 8

%verheadCost !ool 9

%verheadCost !ool 9

%verheadCost !ool <

%verheadCost !ool <

%verheadCost !ool =

%verheadCost !ool =

)eparate Application

*ates

Department (Department ( Department CDepartment CDepartment ;Department ;

!roducts

+ept Application*ates

+ept Application*ates


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*rocess Costing

in a continuous #lo) t%roug% a serieso# manu#acturing steps or processes/

Costs are assigne! to complete! units

trans#erre! out o# t%e process an! toincomplete units remaining in t%e

process/

in a continuous #lo) t%roug% a serieso# manu#acturing steps or processes/

Costs are assigne! to complete! units

trans#erre! out o# t%e process an! toincomplete units remaining in t%e

process/


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Costs are accumulate! #or a perio! o#perio! o#timetime #or pro!ucts in )or9&in&process

inventory/E?uivalent unitsE?uivalent units is a concept

e'pressing t%ese partially complete!pro!ucts as a smaller number o#

#ully complete! pro!ucts/

Costs are accumulate! #or a perio! o#perio! o#timetime #or pro!ucts in )or9&in&process

inventory/

E?uivalent unitsE?uivalent units is a concepte'pressing t%ese partially complete!

pro!ucts as a smaller number o#

#ully complete! pro!ucts/

*rocess Costing


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T,o onehalf completed products aree*uivalent to one completed product.

T,o onehalf completed products aree*uivalent to one completed product.

, -

So1 >1777 units ?7 percent completeare e*uivalent to @1677 complete units.

So1 >1777 units ?7 percent completeare e*uivalent to @1677 complete units.

E?uivalent nits


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For the current period. Aes started 15.000units and copleted 10.000 units. leaving

5.000 units in process 30 percent copleteo an euivalent units of production did Aes have for the period

a 10.000

b 11.500

c 13.500

d 15.000


5.000 units in process 30 percent copleteo an euivalent units of production did

Aes have for the period

a 10.000

b 11.500

c 13.500

d 15.000

E?uivalent nits @uestion


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5.000 units in process 30 percent copleteo an euivalent units of production did Aes have for the period

a 10.000

b 11.500

c 13.500

d 15.000


5.000 units in process 30 percent copleteo an euivalent units of production did

Aes have for the period

a 10.000

b 11.500

c 13.500

d 15.000

871777 units A $@1777 units 5 .


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Fall 2010 Mugan 2(/37

o assue that Aes incurred 627.!00 inproduction costs for the 11.500 euivalent

units hat as Aes8 average cost pereuivalent unit for the period

a 61'4

b 6240c 627!

d 62(0



a 61'4

b 6240c 627!

d 62(0



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a 61'4

b 6240c 627!

d 62(0



a 61'4

b 6240c 627!

d 62(0

B9?1677 881@77 e*uivalent units

4 B9.=7 per e*uivalent unit



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hat portion of the 627.!00 in productioncosts as assigned to or9%in%process

inventor and hat aount as assignedto copleted units for the period

a 60 and 627.!00

b 67.!00 and 620.000c 63.!00 and 624.000

d 612.000 and 615.!00



a 60 and 627.!00

b 67.!00 and 620.000c 63.!00 and 624.000

d 612.000 and 615.!00



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a 60 and 627.!00

b 67.!00 and 620.000c 63.!00 and 624.000

d 612.000 and 615.!00



a 60 and 627.!00

b 67.!00 and 620.000c 63.!00 and 624.000

d 612.000 and 615.!00

0or+inprocess

81@77 e*uivalent units B9.=7 4 B


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E?uivalent nits

%en t%ere are partially complete! units inbeginning inventory8 )or9 e##orts !uring

t%e perio! can be categori+e! as#ollo)s

or9 to complete beginning )or9&in&process

or9 on units starte! an! complete! !uringt%e perio!

or9 on units in en!ing )or9&in&process

%en t%ere are partially complete! units inbeginning inventory8 )or9 e##orts !uring

t%e perio! can be categori+e! as#ollo)s or9 to complete beginning )or9&in&process

or9 on units starte! an! complete! !uring

t%e perio! or9 on units in en!ing )or9&in&process


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E?uivalent nits & E'ample

ACE starte! -une )it% 250 partially complete!units in )or9&in&process =30 complete>/

(uring -une8 ACE complete! t%e units in )or9&in&

process an! starte! an a!!itional 18200 units/%ere )ere 300 units in en!ing )or9&in&process

on -une 30/ %ey )ere 40 complete/

Do) many total e?uivalent units

!i! ACE pro!uce !uring -une:

Continue


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Since


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Since 81977 units ,ere started durin# "une1 and


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F ll 2010 M 37/37


=7E f th + d th it i "=7E of the ,or+ ,as done on these units in "une.

EMBA 5403 Costing Systemsjnjsnjdn

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