c23 - 1 learning objectives power notes 1.product costing allocation methods 2.single plantwide...
TRANSCRIPT
C23 - 1
Learning Objectives
Power Notes
1. Product Costing Allocation Methods
2. Single Plantwide Factory Overhead Rate Method
3. Multiple Production Department Factory Overhead Rate Method
4. Activity-Based Costing Method
5. Activity-Based Costing for Selling and Administrative Expenses
6. Activity-Based Costing in Service Businesses
Chapter M10
C10
Cost Allocation and Activity-Based Costing Cost Allocation and Activity-Based Costing
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Chapter M10
Product Costing Allocation Methods
Activity-Based Costing
Activity-Based Costing in Service
Businesses
Slide # Power Note Topics
Note: To select a topic, type the slide # and press Enter.
Power Notes
3
10
20
Cost Allocation and Activity-Based Costing Cost Allocation and Activity-Based Costing
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Product Costing Allocation MethodsProduct Costing Allocation Methods
PPRROODDUUCCTTSS
Plantwide Overhead RatePlantwide Overhead Rate
Multiple Department RatesMultiple Department Rates
Activity-Based CostingActivity-Based Costing
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Product Costing Allocation MethodsProduct Costing Allocation Methods
PPRROODDUUCCTTSS
Plantwide Overhead RatePlantwide Overhead Rate
Multiple Department RatesMultiple Department Rates
Activity-Based CostingActivity-Based Costing
Single Rate
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Product Costing Allocation MethodsProduct Costing Allocation Methods
PPRROODDUUCCTTSS
Plantwide Overhead RatePlantwide Overhead Rate
Multiple Department RatesMultiple Department Rates
Activity-Based CostingActivity-Based Costing
Department
Department
Single Rate
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Product Costing Allocation MethodsProduct Costing Allocation Methods
PPRROODDUUCCTTSS
Plantwide Overhead RatePlantwide Overhead Rate
Multiple Department RatesMultiple Department Rates
Activity-Based CostingActivity-Based Costing
Activity
Department
Activity
Department
Single Rate
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Single Plantwide Factory Overhead RateSingle Plantwide Factory Overhead Rate
Total budgeted factory overhead costs
Total budgeted plantwide allocation base
= $80 per hour$1,600,000
20,000 direct labor hours
Snowmobile:$80 x 10 direct labor hours = $800
Lawnmower:$80 x 10 direct labor hours = $800
What are the advantages of the single plantwide overhead rate method?
What are the advantages of the single plantwide overhead rate method?
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Multiple Department Factory Overhead RateMultiple Department Factory Overhead Rate
Fabrication Department Overhead Rate:
= $103 per hour$1,030,000
10,000 direct labor hours
Snowmobile:Fabrication: $103 x 8 dlh $824Assembly: $57 x 2 dlh 114 $938
Lawnmower:Fabrication: $103 x 2 dlh $206Assembly: $57 x 8 dlh 456 $662
Assembly Department Overhead Rate:
= $57 per hour$570,000
10,000 direct labor hours
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Conditions for Product Cost DistortionConditions for Product Cost Distortion
Fabrication Fabrication DepartmentDepartment
$103 per directlabor hour
$103 per directlabor hour
Assembly Assembly DepartmentDepartment
Condition 1:Different department overhead rates
$57 per directlabor hour
$57 per directlabor hour
Condition 2:Different ratios of allocation-base usage
Snowmobile8 direct 2 direct
labor hours labor hours
Snowmobile8 direct 2 direct
labor hours labor hours
Lawnmower2 direct 8 direct
labor hours labor hours
Lawnmower2 direct 8 direct
labor hours labor hours
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Activity-Based Costing (ABC)Activity-Based Costing (ABC)
1. Activity-based costing changes the way overhead costs are allocated.
2. When identifying specific activities, inefficiencies may be discovered and eliminated, reducing the product’s cost.
3. Traditional cost accounting undercosts complex products and overstates their profit margins.
4. ABC may be used for decision making but not necessarily for inventory valuation.
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Activity-Based CostingActivity-Based Costing
Activity Amount Activity Rate
Fabrication $ 530,000 / 10,000 dlh = $53Assembly 70,000 / 10,000 dlh = $7Setup 480,000 / 120 setups = $4,000Quality control 312,000 / 104 insps. = $3,000Engineering 208,000 / 16 changes = $13,000 Total $1,600,000
How are the activity costs allocated to specific products?
How are the activity costs allocated to specific products?
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Activity-Based CostingActivity-Based Costing
Activity Amount Activity Rate
Snowmobile 8,000 $53 $424,000Lawnmower 2,000 53 106,000 Total 10,000 $530,000
Fabrication: DL Hours Rate Total
Fabrication $ 530,000 / 10,000 dlh = $53Assembly 70,000 / 10,000 dlh = $7Setup 480,000 / 120 setups = $4,000Quality control 312,000 / 104 insps. = $3,000Engineering 208,000 / 16 changes = $13,000 Total $1,600,000
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Activity-Based CostingActivity-Based Costing
Snowmobile 2,000 $7 $14,000Lawnmower 8,000 7 56,000 Total 10,000 $70,000
Assembly: DL Hours Rate Total
Fabrication $ 530,000 / 10,000 dlh = $53Assembly 70,000 / 10,000 dlh = $7Setup 480,000 / 120 setups = $4,000Quality control 312,000 / 104 insps. = $3,000Engineering 208,000 / 16 changes = $13,000 Total $1,600,000
Activity Amount Activity Rate
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Activity-Based CostingActivity-Based Costing
Snowmobile 100 $4,000 $400,000Lawnmower 20 4,000 80,000 Total 120 $480,000
Setup: Setups Rate Total
Fabrication $ 530,000 / 10,000 dlh = $53Assembly 70,000 / 10,000 dlh = $7Setup 480,000 / 120 setups = $4,000Quality control 312,000 / 104 insps. = $3,000Engineering 208,000 / 16 changes = $13,000 Total $1,600,000
Activity Amount Activity Rate
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Activity-Based CostingActivity-Based Costing
Snowmobile 100 $3,000 $300,000Lawnmower 4 3,000 12,000 Total 104 $312,000
Quality Control: Insps. Rate Total
Fabrication $ 530,000 / 10,000 dlh = $53Assembly 70,000 / 10,000 dlh = $7Setup 480,000 / 120 setups = $4,000Quality control 312,000 / 104 insps. = $3,000Engineering 208,000 / 16 changes = $13,000 Total $1,600,000
Activity Amount Activity Rate
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Activity-Based CostingActivity-Based Costing
Snowmobile 12 $13,000 $156,000Lawnmower 4 13,000 52,000 Total 16 $208,000
Engineering: Changes Rate Total
Fabrication $ 530,000 / 10,000 dlh = $53Assembly 70,000 / 10,000 dlh = $7Setup 480,000 / 120 setups = $4,000Quality control 312,000 / 104 insps. = $3,000Engineering 208,000 / 16 changes = $13,000 Total $1,600,000
Activity Amount Activity Rate
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Activity-Based CostingActivity-Based Costing
Activity Snowmobile Mower Total
Cost Allocation Summary:
Fabrication $ 424,000 $106,000 $ 530,000Assembly 14,000 56,000 70,000Setup 400,000 80,000 480,000Quality control 300,000 12,000 312,000Engineering 156,000 52,000 208,000 Total $1,294,000 $306,000 $1,600,000
Budgeted units 1,000 1,000 Cost per unit $1,294 $306
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Distortion in Product CostsDistortion in Product Costs
Single plantwide rate $ 800 $ 800Multiple department rates 938 662Activity-based costing 1,294 306
What caused these differences, and which method is more accurate?
What caused these differences, and which method is more accurate?
Snowmobile Lawnmower
Factory Overhead Cost per Unit:
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1. Post-sale technical support
2. Order writing
3. Promotional support
4. Order entry
5. Customer return processing
6. Shipping document preparation
7. Shipping and handling
8. Field service
Selling and administrative activities may include:
Selling and Administrative ActivitiesSelling and Administrative Activities
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
Hopewell Hospital—Activity-Based Costing
AdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
Hopewell Hospital—Activity-Based Costing
$180 per admissionAdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
Hopewell Hospital—Activity-Based Costing
$320 per image
$180 per admissionAdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
Hopewell Hospital—Activity-Based Costing
$320 per image
$180 per admissionAdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
Cost Budget $960,000
Estimated Activity 3,000 images
Radiological Testing Activity Rate:
= $320
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
$200 per hour
Hopewell Hospital—Activity-Based Costing
$320 per image
$180 per admissionAdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
$200 per hour
Hopewell Hospital—Activity-Based Costing
$120 per specimen
$320 per image
$180 per admissionAdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
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Activity-Based Costing in Service BusinessesActivity-Based Costing in Service Businesses
PPAATTIIEENNTTSS
$200 per hour
Hopewell Hospital—Activity-Based Costing
$120 per specimen
$150 per day
$320 per image
$180 per admissionAdmittingAdmitting
RadiologicalRadiologicalTestingTesting
Operating Operating RoomRoom
PathologicalPathologicalTestingTesting
Dietary andDietary andLaundryLaundry
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Activity Costs Allocated to a PatientActivity Costs Allocated to a Patient
Activity-Base Activity ActivityActivity Usage Rate Cost
Admitting 1 admission $180 $ 180Radiology testing 2 images 320 640Operating room 4 hours 200 800Pathological testing 1 specimen 120 120Dietary and laundry 7 days 150 1,050 Total $2,790
Patient Name: Mary Wilson
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Activity Costs Allocated to a PatientActivity Costs Allocated to a Patient
The overhead cost associated with services can be related to the customers that use the service.
The overhead cost associated with services can be related to the customers that use the service.
Activity-Base Activity ActivityActivity Usage Rate Cost
Admitting 1 admission $180 $ 180Radiology testing 2 images 320 640Operating room 4 hours 200 800Pathological testing 1 specimen 120 120Dietary and laundry 7 days 150 1,050 Total $2,790
Patient Name: Mary Wilson