Tut2Slide Managerial ACC

8/13/2019 Tut2Slide Managerial ACC

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What have we learnt in Lesson 3

Costs accumulation methodology

- costs accumulated by Jobs- costs accumulated by Processes

Differences between the two costing methods

Differences between normal & actual costing

How Mfg OH costs are allocated/applied toproduct, POHR, basis and treatment of thevariances

Tutorial 2



Tutorial 2 Review

1. Production processes using Job costing/process costing / hybrid costing

2. Flow of Costs in Job Order Costing

3. Comparing Job order and Processcosting

4. POHR5. Costs allocation basis

6. Why use an allocation base



Job costing/Process costing/Hybrid examples

Type of Production

Process Description of Process Example of Manufacturer

Job Shop • Low volume

• Little standardisation

• Unique products, customized unique motorcycles –

Orange County

Choppers

Batch • Low volume

• Multiple products bakery –

Sunshine

Assembly Line • Higher volume

• A few major products automobile production

line – Ford, Toyota

Mass Customization • High volume• Many standardised components

• Customised combination of

components sporting shoes line -

MiAdidas

Continuous Flow • High volume

• Highly standardised commodity

products oil refinery –

Exxon



Generally, Job Order costing or Job Costing

is prevalent in low volume processes & high

cost items. Often the Jobs are bespoke, whilst

Process costing is commonly seen for highvolume production, small, identical and low

cost items.

Though batch production is of low volume

but there may be situations customer may

request for high volume & in such situations

a batch production can comprise of a Hybrid

of Job-Order and Process costing.

Note:



Other users of Job Order costing

Most consulting, engineering, servicesproviders use Job Costing;

Project, missions, non-profit or chartableorganisations, program/event organisersare also incline to use Job costing



Job-Order CostingDocument Flow Summary

Job Cost

Sheets

Materials

Requisition

Manufacturing

Overhead

Account

Direct

materials

Indirect

materials

Materialsused may be

either direct or

indirect.

Refer Lecture notes on T account costs flow




Job Cost

Sheets

Employee Time

Ticket

Manufacturing

Overhead

Account

An

employee’s

time may be either

direct orindirect. Direct

Labor

Indirect

Labor





Manufacturing

Overhead

Account

Other

Actual OH

Charges

Job Cost

Sheets

POHR

rate used

to applyoverhead

Materials

Requisition

Employee

Time TicketIndirect

Labor

Indirect

Material


Bill

completed

jobs to

customers



Costs Flow through T accounts

Refer Lecture notes on Job Order costs

flow T accounts & Journal entries

(lecture notes slide 3-28 to 3- 40)



Comparing Job Order & Process Costing

Job-Order Process

Number of jobs worked Many Single ProductCost accumulated by Individual Job Dept./Process

Recording costs by Job Sheet, record Dept./Process

** Both make use of the WIP Account, one track by jobs

(summarised in the Job Sheet Reports) the other track

by processes or departments ( summarised in the

Production Report).



Predetermined Overhead Rate (POHR)

POHR = Budgeted Mfg OH costs ÷ Budgeted Activity Base ( amount ofcost driver)

e.g. of activity base generally used under the traditional costing areDLH or DL$ or MHr

So MOH applied = POHR X Actual Activity

As such any over- or under-applied OH is the OH variance

2 alternative treatments of this variance (refer lecture notes slide 3-48)

Note:

POHR is based on estimates and is determined before the periodbegins.



Using a predetermined rate makes it

possible to estimate total job costssooner.

Actual overhead for the period is notknown until the end of the period.

Job-Order Costing- The Need for a POHR



Cost Allocation Basis - Cost Drivers

Traditional plant-wide single rate uses any of the 3allocation basis:

DLH, MHr, &

DL$

First two basis are predominantly used in traditional plant-wideallocation style.



Why use an Allocation Base?

1. It is impossible to trace all OH costs toparticular job

2. Mfg OH consists of many different items

ranging from grease/lubricants used inmachines to production manager’s salary

3. Many types of Mfg OH costs are fixed eventhough output fluctuates during the period

4. Actual OH is not known until the end of theperiod



Actual MOH vs Applied MOH

When Actual overhead incurred exceedsthe MOH applied to the finished goods, thedifference is under-applied

Conversely if MOH applied is more thanthe actual OH incurred then we haveover-applied MOH

The balance remaining in the MOH A/c iseither over- or under-applied MOH

This over- or under-applied MOH ischarged to the COGS at the end of the

accounting period.



Overapplied and UnderappliedManufacturing Overhead - Summary

Alternative 1 Alternative 2

If Manufacturing Close to Cost

Overhead is . . . Allocation of Goods Sold

UNDERAPPLIED INCREASE INCREASE

Work in Process Cost of Goods Sold

(Applied OH is less Finished Goods

than actual OH) Cost of Goods Sold

OVERAPPLIED DECREASE DECREASE

Work in Process Cost of Goods Sold

(Applied OH is greater Finished Goods

than actual OH) Cost of Goods Sold



Two-Stage Cost Allocation

Department1

Department2

Department3

DepartmentCost pools

Stage One:

Cost assignedto departments

IndirectMaterials

OtherOverhead

IndirectLabor



Departmental Overhead Rates

DirectLabourHours

Machine

Hours

DirectLabourCost $

Departmental AllocationBases

Department1

Department2

Department3

DepartmentCost pools

Stage One:

Cost assignedto departments

Stage Two:

Costs appliedto products

IndirectMaterials

OtherOverhead

IndirectLabour

Products



terms used interchangeably:

Budgeted = Estimated/Planned

Applied = Allocated/Absorbed

Actual = Incurred

Common difficulties students encounterin product costing



Tutorial 3 Assignment

Group K15, & K17

Team 1 = Qn 1, Problem 9-15 -Process costing

Team 2 = Qn 5, Supple Qn on ABC ,

Team 3 = Qn 3, Case 9-19 -Process costing Team 4 = Qn 4, Problem 7-19 –ABC

All teams Qn 6, Qn 2 on Problem 9-16 -Processcosting

Group K 16 Teams 1 to 4 same as above

Team 5 = Qn 5, Supple qn on ABC

All teams = supple qn 2 MCQs

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