ACCT 2102 1nd Edition Exam 2 Study Guide Lectures 6 8 Lecture 6 February 6 Chapter 4 What is a Refined Costing System A type of costing that helps allocate Manufacturing Overhead fairly by using multiple cost drivers Through this companies hope to find a more accurate sense of MOH and product prices What is the problem with using a single plant overhead rate A single plant overhead rate can lead to cost distortion Cost distortion is the over or under costing price of using a refined system versus a traditional costing system that we discussed in Chapter 3 Departmental Overhead Rates Used when a company has multiple departments and each department has its own cost driver and overhead rate Only uses DL hours and Machine hours Activity Based Costing Used when a company has multiple activities and each activity has its own cost driver and overhead rate 4 different activity levels o Unit Level Activities affect each individual unit DL or Machine hours o Batch Level Activities affect groups of units Number of Setups or Number of Moves o Product Level Activities activities that affect a specific product line Number of Steps or Number of Moves o Facility Level Activities activities not found in the other categories DL or Machine Hours Volume Based costs are based on production levels like Direct Labor Hours and Machine Hours Transaction Based costs are based on numbers like Number of Setups or Number of Moves Why should companies use ABC Because ABC can help companies by giving them a better understanding of their costs What are the Steps to ABC 1 Identify the activities 2 Estimate the total Manufacturing Overhead that is associated with each activity 3 Choose an allocation base 4 Calculate an overhead rate for each activity 5 Allocate the indirect costs Lectures 7 and 8 February 18 and 20 Chapter 5 What is Process Costing Process costing is for a company that creates large batches of identical units of a product It is more useful to use Process costing than Job costing in this environment because all jobs require the same input What is the initial cost object for Process Costing Normally the initial cost object is the unit however in this case it is the process department itself The Flow of Costs Process Costing flows by department Production begins in department one and units are completed and transferred to department 2 This process continues until the final department where the goods are completed and transferred out to Finished Goods Once finished goods are sold they are then closed to Cost of Goods Sold What are Conversion Costs Direct Labor and Manufacturing Overhead Equivalent Units Used to enable the fair assignment of costs to completed and partially completed units Represents the total amount of units that could be completed Formula Physical Units times the percentage completed Weighted Average A way to calculate process costing by combining costs of units in both beginning inventory and units started Consists of 5 steps o Flow Of Physical Units where you equate the number of physical units in beginning inventory and units started with units in ending inventory and the units completed and transferred out o Calculation of Total Equivalent Units where you use the physical units to conduct a chart of the units in Direct Material and Conversion Costs o Costs to Account For and the Calculation of EU Cost where you total the beginning inventory cost and costs added in the Direct Material and Conversion costs and divide that number by the total equivalent units o Assign the Costs where you use the number from the previous step and multiply them by the costs of Completed and transferred units and the units in Ending Inventory If you are figuring out process costing for the second third fourth department etc then you add a column for transferred in costs in the second and third step