ACCT 2102 1st Edition Exam 2 Study Guide Lectures 10 18 Here is the outline of the test Chapter 4 2 conceptual and 4 calculation Chapter 5 2 conceptual and 5 calculation Chapter 6 4 conceptual and 3 calculation 1 extra credit question as a bonus Below are conceptual and mathematical ideas which may or may not be on the test Farmer says nothing outside of the notes we did in class will be on the test therefore a book is not required unless needed for own personal reference Again nothing in Chapters 4 5 or 6 that were not in the notes will be on the test She gave hints in class about what some of the conceptual questions would be so if there is an asterisk beside a concept then it will 100 be on the test Chapter 4 Lecture 10 September 9 Lecture 11 September 11 Lecture 12 September 13 and Lecture 13 September 16 Two ways of depicting a more accurate allocation of MOH which will be discussed throughout this chapter are Departmental Overhead Rates Activity Based Costing Traditional Costing System Plant wide Overhead Rate Calculate the company s plant wide overhead rate assuming the company uses DL hours as its allocation base Refined Costing System Departmental Overhead Rates Calculate departmental overhead rates assuming the company would use machine hours as the allocation base for the Machining department and DL hours as the allocation base for the Assembly department DM and DL remain the same in both the Traditional and Refined Costing Methods Cost distortion Over or under costing your job when running two systems traditional and refined simultaneously caused by difference in resource consumption What is the goal of ANY refined costing system Increase accuracy to get a true picture of what our costs are Can refined costing systems only be used to allocate MOH at manufacturers No What are the key steps in implementing ABC 1 Identify the activities and estimate the total MOH costs associated with each activity These are called activity cost pools Unit Level activity we perform on all of our units Batch Level activity we perform on a group of units Product Level activity we perform on an individual product line Facility Level activity we perform on everything else 2 Choose an allocation base for each activity Consider true cost driver when making this selection 3 Calculate a POHR for each activity 4 Allocate the indirect costs Circumstances favoring the implementation of ABC Offers multiple products Consume at different rates than under the traditional system ABC will often uncover that a high volume product has been overcosted Great mathematical problem to review because a similar problem WILL be on the test Also keep in mind that per unit cost and total cost will be different Before the Amplifier is a manufacturer of guitars The company sells acoustic and electric guitars The electric guitar line is not as profitable as expected despite high production levels Management is concerned that the price of the electric guitar line is too high in comparison to its competitors and is considering switching to ABC to improve costing accuracy Currently manufacturing overhead is applied to production based on DL hours and Before the Amplifier sets its sales prices by marking up unit production costs The following information has been prepared GIVEN Activity Cost Driver Cost Pool Assembly DL Hours 500 Machining Machine Hours 1 500 Setting Up Equipment Number of Setups 1 200 Moving Goods Number of Moves 800 WORKED Activity Cost Driver Cost Pool Acoustic Electric Total Assembly DL Hours 500 20 DL hours 80 DL Hours 100 DL hours Machining Machine Hours 1 500 10 M Hours 40 M Hours 50 M Hours Setting Up Equipment Number of Setups 1 200 4 Setups 4 Setups 8 Setups Moving Goods Number of Moves 800 1 Move 4 Moves 5 Moves Total 4 000 Each Acoustic guitar requires 1 direct labor hour and 5 machine hours to produce Each Electric guitar requires 8 direct labor hours and 4 machine hours to produce The production equipment is setup for every 5 Acoustic guitars produced and for every 25 Electric guitars produced Acoustic guitars are moved during production in groups of 20 guitars Electric guitars are moved during production in groups of 25 guitars The direct material cost per Acoustic guitar is 60 and the direct material cost per Electric guitar is 70 Direct Laborers are paid at a rate of 25 per hour The projected production levels for the period are 20 Acoustic guitars and 100 Electric guitars Determine the amount by which the lines are over underallocated IN TOTAL Traditional Costing System POHR 1 4 000 100 DL hrs ABC Costing System 40 DL hr POHR 1 500 100 DL hrs POHR 2 1 500 50 m hrs POHR 3 1 200 8 setups POHR 4 800 5 moves 5 DL hr 30 m hr 150 setup 160 move Acoustic per unit approach DM 60 DM 60 DL 25 x 1 hr 25 DL 25 x 1 hr 25 MOH 40 x 1 hr 40 MOH 1 5 x 20 hrs 20 5 125 2 30 x 10 hrs 20 15 3 150 x 4 setup 20 30 4 160 x 1 move 20 8 Total per unit Total per unit 143 125 143 18 unit undercosted Total undercosted 18 unit x 20 guitars 360 undercosted Electric DM 70 DM 70 DL 25 x 8 hrs 20 DL 25 x 8 hrs 20 MOH 40 x 8 hrs 32 MOH 1 5 x 80 hrs 100 4 122 2 30 x 40 hrs 100 12 3 150 x 4 setup 100 6 4 160 x 4 move 100 6 4 Total job cost Total job cost 118 40 122 118 40 3 60 unit overcosted Total overcosted 3 60 unit x 100 guitars 360 overcosted The higher volume product is normally overcosted by the traditional system Chapter 5 Lecture 14 September 18 Lecture 15 September 20 and Lecture 16 September 23 The ultimate goal of both job order costing and process costing is to determine unit cost Unit cost Costs Output Why is understanding process costing necessary Different manufacturing environment large batches mass production input is the same and output is the same Cost object used for cost accumulation o Manufacturing cost categories DM DL MOH collectively we call DL and MOH conversion cost o Flow of costs through the accounts RM Inv WIP Inv FG Inv COGS Draw a schematic overview of a typical process costing environment Sequential RM Inv WIP Dept 1 WIP Dept 2 FG Inventory COGS Beg TO Beg Beg COGS DM DM TI DL DL END MOH MOH END TI To deal with the issue of partially completed units left in ending WIP we use equivalent units Equivalent Units Physical Units PU x Percent Complete Equivalent units show what you have partially which could be complete What do we use the EU for To express the amount of work done during a period in terms of fully completed units of output In process costing we calculate EUs separately for Direct