Professional Documents
Culture Documents
Overview
Cost Assignment
Product/Service Costing
Cost Assignment Systems
Cost Assignment
Direct Costs
traced
Cost Object
allocated
on the basis of cost
drivers/activity levels
Indirect Costs
Product Costing
Direct Materials,
Direct Labour
traced
Product
allocated
on the basis of cost
drivers/activity levels
Indirect Manufacturing
Costs
Service Costing
Direct Labour
traced
Service
allocated
on the basis of cost
drivers/activity levels
Indirect Costs
Actual costing
Normal costing
Budgeted costing
customized service
Standard costing
Actual Costing
Direct costs
e.g., direct materials
direct labour
Indirect costs
e.g., indirect
manufacturing
costs
Class Example
Actual Costing
Actual Operating Data
Units produced
Direct materials
Direct labour
Variable manufacturing OH
Fixed manufacturing OH
Cost per unit
January
5,000
$10,000
$30,000
$5,000
$75,000
February
2,000
$4,000
$12,000
$2,000
$75,000
Indirect costs
e.g., indirect
manufacturing
costs
Indirect costs
e.g., administrative
support costs
Standard Costing
Direct costs
e.g., direct materials
direct labour
Indirect costs
e.g., indirect
manufacturing
costs
Comparison of
Cost Assignment Systems
Actual
Direct costs
e.g., DM, DL
Normal
Budgeted
Standard
Actual input
Indirect costs
quantity
e.g., OH
X
Actual rate
Actual input
Actual input
quantity
quantity
X
X
Budgeted rate Budgeted rate
Standard input
quantity
X
Budgeted rate
Normal Costing
indirect cost allocated =
actual input qty x budgeted indirect cost rate
WHERE
budgeted indirect cost rate =
budgeted indirect cost / denominator activity
overhead allocated =
actual input qty x budgeted overhead rate
WHERE
budgeted overhead rate =
budgeted overhead / denominator activity
Budgeted Overhead
Unit of Measurement
Level of activity
Theoretical capacity
Practical capacity
Master budget volume
Normal volume
Budgeted Overhead
Monthly budget
Quarterly budget
Annual budget
Class Example
Normal Costing OH Allocation
Budgeted data:
Planned production
= 5,000 units
Planned machine hours for 5,000 units
= 10,000 machine hours
Denominator activity for manufacturing overhead
= 10,000 machine hours
Budgeted overhead
= $30,000
Actual data:
Actual production
= 5,000 units
Actual machine hours for 5,000 units produced
= 10,400 machine hours
Actual overhead
= $32,500
Class Example
Normal Costing OH Allocation
Budgeted OH rate
OH allocated
Over- (Under-) allocated OH
Underallocated overhead
Overallocated overhead
Underallocated Overhead
If
actual overhead
> overhead allocated
then
difference = underallocated overhead
Overallocated Overhead
If
actual overhead
< overhead allocated
then
difference = overallocated overhead
Class Example:
Budgeted Costing
Taylor and Associates, a consulting firm uses a
budgeted costing system. It has a single
direct cost category (professional labour) and
a single indirect cost category (client
support). Indirect costs are allocated to
jobs/clients on the basis of professional
labour costs.
The condensed budget for Year 10 for Taylor
and Associates is given as follows:
Class Example:
Budgeted Costing
Revenues
$20,000,000
Total costs
Direct costs
Professional labour
$ 5,000,000
Indirect costs
Client support
13,000,000
Total costs
$18,000,000
Operating income
$ 2,000,000
Class Example:
Budgeted Costing
1.
2.
3.
Markup Percentage
Revenue to professional labour costs
Bidding price
10 batches
0.01 m/c hr
$0.05
Cost Object
allocated on the basis
machine hours
Indirect Costs
Activity-Based Costing
Direct Costs
traced
Cost Object
Indirect Costs
Red Pen
Orange Pen
Activity-Based Costing
Red Pen
Orange Pen
Activity-Based Costing
Stage 1:
Resources
Trace costs of resources to
activities
Activities
Stage 2:
Cost Object
Direct Cost
Cost tracing
Applications of
Activity-Based Costing
Diverse products
Complex production process
Products with short life cycle
Strong competition
Class Example
Activity-Based Costing
Gideon specializes in manufacturing two
models of the desktop DNA machine: The
Diagnostic and The Profiler.
The Diagnostic
The Profiler
Direct labour
$19,600
Materials
handling
$7,200
5 setups
10 setups
Machining
$9,800
Assembly
$3,230
600 units
350 units
Quality control
$1,820
1.
2.
Direct materials
Direct labour
Indirect mfg costs
Total manufacturing costs
Units produced
Cost per unit
The
Profiler
Activity-Based Costing
Activity
Materials
handling
Machining
Assembly
Quality
control
Driver
Rate
Diagnostic
Profiler
$1,650
$15,900
19,600
19,600