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Product costing lo

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Product costing lo

  1. 1. PRODUCT COSTING LO • DISCUSS WHY UNIT COSTS ARE IMPORTANT • TO VALUE INVENTORY • INPUT TO DECISIONS ON PRICING, MAKE OR BUY, ACCEPT OR REJCET SPECIAL ORDERS • ACCURATE COST DATA ESSENTIAL
  2. 2. COSTING APPROACHES • CAN DESCRIBE BOTH TRADITIONAL AND ABC • CAN EXPLAIN DIFFERENCES • CAN TRACE DIRECT COSTS BUT ASSIGN INDIRECT COSTS USING SOME BASIS OR COST DRIVERS • ECPLAIN WHY TRADITIONAL CAN DISTORT COSTS:OVERHEAD COSTS HAVE GONE UP
  3. 3. TRADITIONAL CANNOT ASSIGN • OVERHEAD PROPERLY • CONSUMED BY PRODUCTS IN DIFFERENT PROPORTIONS THAN UNIT BASED OVERHEAD ACTIVITIES LIKE PER DIRECT LABOUR HOUR/MACHINE HOUR • SOME OVERHEADS ARE NON-UNIT BASED
  4. 4. CAN EXPLAIN ABC • NON-UNIT LEVEL ACTIVITY:SET UP • INCURRED EACH TIME A BATCH OF PRODUCTS IS PRODUCED • MORE PRODUCTION, MORE SET UPS • NUMBER OF SET UPS, NOT NUMBER OF UNITS OF PRODUCTS IS A MUCH BETTER MEASURE OF OF THE CONSUMPTION OF THE SET UP ACTIVITY
  5. 5. MAIN PROBLEM • IS DIRECT LABOUR HOURS DRIVING THE OVERHEAD COSTS? • WHAT ACTIVITIES DRIVE THE OVERHEAD COSTS? • SPLIT OVERHEAD COSTS INTO ACTIVITIES • CALCULATE A RATE FOR EACH ACTIVITY • USE THIS RATE TO ASSIGN TO PRODUCTS
  6. 6. ADVANTAGE • MANY PRODUCTS: ABC IS SAID TO DELIVER MORE ACCURATE COST DATA

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