ACCT-241 Lecture Notes - Lecture 7: Computer Network, General Ledger, Expense

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blushprairie-dog77

21 Aug 2018

School

American University

Department

Accounting And Taxation

Course

ACCT-241

Professor

teto

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Document Summary

Activity-based costing: a tool to aid decision making. Activity-based costing is ordinarily used as a supplement to, rather than as a replacement for, a company"s usual costing system. Most organizations that use activity-based costing have two costing systems the official costing system that is used for preparing external financial reports and the activity-based costing system that is used for internal decision making and for managing activities. As a consequence, activity-based costing differs from traditional absorption costing in three ways. In to products and nonmanufacturing costs are not assigned to products. Conversely, in activity-based costing, we recognize that many nonmanufacturing costs relate to selling, distributing, and servicing specific products. Thus, abc includes manufacturing and nonmanufacturing costs when calculating the entire cost of a product rather than just its manufacturing cost. There are two types of nonmanufacturing costs that abc systems assign to products. First, abc systems trace all direct nonmanufacturing costs to products.

Related Questions

Direct labor or machine hours may not be the appropriate costdriver for overhead

in all areas of manufacturing due to the complexities of manymanufacturing

processes. Many companies use activity-based costing (ABC) whichuses multiple drivers

(items that consume resources) rather than just one driver toapply overhead to their

activities. With ABC, a company can use a cost driver that has adirect cause/effect relationship

in its applied overhead costs.

Evian looked into ABC as a method of costing because of thevariety of items it

produces and the many different activities in which it isinvolved. The activities listed

below are a sample of possible cost pools for Evian.

Assembling

Payroll

Billing

Plant supervision

Digging trenches

Purchasing materials

Machine maintenance

Selling

Machine setups

Testing

Molding

Welding

Packaging

Instructions for part 4

(a) For each of these cost pools, what would be thelikely activity cost driver?

(b) Using the following information, determine theoverhead rates and the actual cost assigned for each of theactivity cost pools in a possible ABC system forEvian.

EVIAN CORPORATION

Expected

Use of Actual

Estimated CostDrivers Use of

Activity CostPools Cost Drivers Overhead per Activity Drivers

Irrigationinstallation Labor cost $1,999,500 12,900 12,941

Machining (all machine use) Machine hours 1,670,400 33,408,000 33,409,000

Customer orders # of orders 30,636 2,553 2,520

Shipping none(direct) N/A traced directly

Design Cost per design 820 10 7

Selling Number of calls 372,300 21,900 22,100

(d) (1) The results of ABC can provide a more accuratepicture of costs. Discuss the value of Evian using this system todetermine overhead costs.

(2) How might using ABC affect decision making atEvian?

lemonjackal901

Cornerstone Exercise 11.4 (Algorithmic) Activity-Based Life-Cycle Costing Kagle design engineers are in the process of developing a new âgreenâ product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: $110 per direct labor hour Material usage rate: $30 per part ABC system: Labor usage: $25 per direct labor hour Material usage (direct materials): $30 per part Machining: $75 per machine hour Purchasing activity: $170 per purchase order Setup activity: $3,100 per setup hour Warranty activity: $700 per returned unit (usually requires extensive rework) Customer repair cost: $25 per repair hour (average) Activity and Resource Information (annual estimates) Design A Design B Units produced 20,000 20,000 Direct material usage 340,000 parts 315,000 parts Labor usage 55,000 hours 125,000 hours Machine hours 55,000 65,000 Purchase orders 2,000 1,500 Setup hours 750 300 Returned units 1,400 400 Repair time (customer) 2,200 650 Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to $20 per unit for Design A and $50 per unit for Design B? Compute the Post-purchase cost for each design. Post-Purchase Cost Design A $ 812.5 Design B $ 946.56 Assume that the environmental cost is borne by society. Now which is the better design?

aquamarinedeer942

Cornerstone Exercise 11.4 (Algorithmic) Activity-Based Life-Cycle Costing Kagle design engineers are in the process of developing a new âgreenâ product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: $110 per direct labor hour Material usage rate: $30 per part ABC system: Labor usage: $25 per direct labor hour Material usage (direct materials): $30 per part Machining: $75 per machine hour Purchasing activity: $170 per purchase order Setup activity: $3,100 per setup hour Warranty activity: $700 per returned unit (usually requires extensive rework) Customer repair cost: $25 per repair hour (average) Activity and Resource Information (annual estimates) Design A Design B Units produced 20,000 20,000 Direct material usage 340,000 parts 315,000 parts Labor usage 55,000 hours 125,000 hours Machine hours 55,000 65,000 Purchase orders 2,000 1,500 Setup hours 750 300 Returned units 1,400 400 Repair time (customer) 2,200 650 Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to $20 per unit for Design A and $50 per unit for Design B? Compute the Post-purchase cost for each design. Post-Purchase Cost Design A $ Design B $ Assume that the environmental cost is borne by society. Now which is the better design?

viridianclam993

ACCT-241 Lecture Notes - Lecture 7: Computer Network, General Ledger, Expense

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