ACTG 2300 Lecture 4: Day 4 Notes

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Day 4 1/15
Topics
1. Allocation of Manufacturing Overhead
2. Calculation of COGS
Cost Traceability
To determine the cost of a product
Types of Cost that goes into Product Cost (PDT COST)
(Fundamental Cost Elements)
1. Direct materials (materials to make product)
2. Direct labor (people making the product)
3. Manufacturing overhead (machines/utilities used to produce)
a. Indirect cost
b. EX: supervisor salary (indirect labor), utilities, insurance, production
related taxes (not income, but resource taxes), rent, depreciation of
assets (machines), indirect material
All 3 are manufacturing costs
DL and MO together = Conversion cost
o We use labor and overhead to convert material into finished goods
EX: Supervisor Salary = $1,000
Regular
o Volume = 1,000 gallons
o Unit Production Time = 10 hours
o Total Production Time = 10,000 hours
Fat Free
o Volume = 1,000 gallons
o Unit Production Time = 15 hours
o Total Production Time = 15,000 hours
EX ANS: Make a ratio (many answers)
Add TPT = 10,000 + 15,000 = 25,000
15,000 / 25,000 = 3/5
3/5 of $1000 = $600
o $600 to Fat Free
o $400 to Regular
ANS:
1. Make an assumption
2.
EX ANS: Allocation method how we assign indirect cost to the cost object
1,000 / (10,000 + 15,000) = $0.04 avg. per hour
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