ACCT 2301 Chapter Notes - Chapter 4: Cost Driver, Indirect Costs, Fixed Cost

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periwinkledinosaur391

21 Feb 2016

School

Northeastern University

Department

Accounting

Course

ACCT 2301

Professor

Ed Dinan

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Document Summary

Cost accumulation: to determine the cost of a particular object. Cost accumulation begins with identifying the cost objects. Cost driver: has a cause and effect relationship with a cost object. The number of caps (cost driver) has an effect on the cost of caps (cost object) Cost object: cost per unit*cost driver=total cost of object. Management cannot know actual costs and revenues until after running the. Business decisions are usually based on estimated rather than actual costs because a decision must be made before actual cost is known. Assignment of costs to objects in a retail business. Assigning costs to the departments (cost objects) requires cost tracing and cost allocation. Direct costs can be easily traced to a cost object in a cost effective manner. Cost of goods sold is a direct cost (cost of tracing cost of goods sold is small. Indirect costs cannot be easily traced to a cost object relative to benefits obtained used for financial reporting)

Related Questions

Kubin Companyâs relevant range of production is 21,000 to 25,000 units. When it produces and sells 23,000 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	8.10
Direct labor	$	5.10
Variable manufacturing overhead	$	2.60
Fixed manufacturing overhead	$	6.10
Fixed selling expense	$	4.60
Fixed administrative expense	$	3.60
Sales commissions	$	2.10
Variable administrative expense	$	1.60

2. Assume the cost object is the Manufacturing Department and that its total output is 23,000 units.

a. How much total manufacturing cost is directly traceable to the Manufacturing Department?

b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?


2a.	Direct materials per unit
	Direct labor per unit
	Variable manufacturing overhead per unit
	Fixed manufacturing overhead per unit
	Total manufacturing cost per unit	$0.00
	Number of units sold
	Total direct costs	$0

2b.	Total indirect costs

beigemallard451

Kubin Companyâs relevant range of production is 25,000 to 33,500 units. When it produces and sells 29,250 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	8.50
Direct labor	$	5.50
Variable manufacturing overhead	$	3.00
Fixed manufacturing overhead	$	6.50
Fixed selling expense	$	5.00
Fixed administrative expense	$	4.00
Sales commissions	$	2.50
Variable administrative expense	$	2.00

Required:

2. Assume the cost object is the Manufacturing Department and that its total output is 29,250 units.

a. How much total manufacturing cost is directly traceable to the Manufacturing Department?

b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?

2. Assume the cost object is the Manufacturing Department and that its total output is 29,250 units.

a. How much total manufacturing cost is directly traceable to the Manufacturing Department? (Round per unit values to 2 decimal places.)

b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?

Show less


2a.	Direct materials per unit	$8.50
	Direct labor per unit	5.50
	Variable manufacturing overhead per unit	3.00
	Fixed manufacturing overhead per unit	6.50
	Total manufacturing cost per unit	$23.50
	Number of units sold	29,250
	Total direct costs	$687,375

2b.	Total indirect costs

3. Assume the cost object is the companyâs various sales representatives. Furthermore, assume that the company spent $117,000 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company's sales representativesâ compensation.

a. When the company sells 29,250 units, what is the total direct selling expense that can be readily traced to individual sales representatives?

b. When the company sells 29,250 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

a. When the company sells 29,250 units, what is the total direct selling expense that can be readily traced to individual sales representatives? (Round per unit value to 2 decimal places.)

b. When the company sells 29,250 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

<a tabindex="1" aria-label="3. Assume the cost object is the companyâs various sales representatives. Furthermore, assume that the company spent ${{[a(12)]:#,###}} of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company" s="" sales="" representativesâ="" compensation.="" a.="" when="" the="" company="" sells {{[a(3)]:#,###}}="" units,="" what="" is="" total="" direct="" selling="" expense="" that="" can="" be="" readily="" traced="" to="" individual="" representatives?="" (round="" per="" unit="" value="" 2="" decimal="" places.)="" b.="" indirect="" cannot="" show="" less'="" class="show gaga" style="margin: 0px; padding: 0px; border: 0px; color: rgb(22, 72, 131); font-weight: bold; outline: none; font-size: 11px; position: absolute; right: 24px;">Show less


3a.	Sales commissions per unit
	Number of units sold
	Total sales commission
	Fixed portion of sales representativesâ compensation
	Total direct selling expense

3b.	The total indirect selling expense

harlequinsardine998

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

ACCT 2301 Chapter Notes - Chapter 4: Cost Driver, Indirect Costs, Fixed Cost

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