This document discusses cost measurement and different costing methods, including absorption costing and variable/direct costing. It provides examples to illustrate the calculation of product costs under absorption costing and variable costing. Absorption costing includes both variable and fixed manufacturing costs in product costs, while variable costing treats fixed costs as period costs not included in product costs. The document compares the two methods and discusses their treatment of inventory costs and reported profit.
References:
Inventory Control Models, 2013 Pearson Education, Inc. publishing as Prentice Hall
Special Inventory Models, 2010 Pearson Education, Inc. publishing as Prentice Hall
6.3 Further Business Applications: Economic Lot Size
Dr. Grethe Hystad, Mathematics Department, The University of Arizona (www.math.arizona.edu)
Business Dictionary (www.businessdictionary.com)
INVENTORY MODELS
One basic problem of
inventory management is to find
out the order quantity so that it
is most economical from overall operational point of view. Here that problem lies in minimizing the two conflicting costs, i.e. ordering cost and inventory carrying cost.
Inventory models help to find out the order quantity which minimizes the total costs(sum of ordering costs and inventory carrying costs).
References:
Inventory Control Models, 2013 Pearson Education, Inc. publishing as Prentice Hall
Special Inventory Models, 2010 Pearson Education, Inc. publishing as Prentice Hall
6.3 Further Business Applications: Economic Lot Size
Dr. Grethe Hystad, Mathematics Department, The University of Arizona (www.math.arizona.edu)
Business Dictionary (www.businessdictionary.com)
INVENTORY MODELS
One basic problem of
inventory management is to find
out the order quantity so that it
is most economical from overall operational point of view. Here that problem lies in minimizing the two conflicting costs, i.e. ordering cost and inventory carrying cost.
Inventory models help to find out the order quantity which minimizes the total costs(sum of ordering costs and inventory carrying costs).
There is a growing demand to access enterprise data from mobile devices. Usually to support multiple devices, multiple applications need to be developed using multiple languages. Oracle Mobile Application Framework allows you to create one single application, that runs on multiple mobile device platforms based on a single code base. Oracle MAF leverages the existing development skills of both Oracle ADF and Java developers and enabled the development team of BCPRA (British Columbia Provincial Renal Agency) to create PROMIS Lite.
PROMIS (Patient Records and Outcome Management Information System) Lite gives authorized users, such as nurses, doctors and surgeons mobile access to a subset of patient information such as medication and lab test results. In this session you will learn how this app evolved from a brainwave at the office to a real on device app. You will see the entire process, from business case to requirements and from development to device. The result is amazing as you will learn from the demo at the end of this session.
School pro - Web based management systemrworksinc.com
SchoolPro is a web based school management & marks analytics system. Armed with cloud computing, web 2.0 technologies and other advancing technologies, SchoolPro presents Indian schools to reach new heights. Aim of schoolPro is to improve the standards of Indian school systems. Information is wealth - only when it is mined properly. SchoolPro offers multiple tools to analyze and help students to improve their performance. School children’s improvement leads to Indian school system improvement, which ultimately pushes India forward.
Cost Accounts - Classification of manufacturing costs - Accounting for manufacturing costs. Cost Accounting Systems: Job order costing - Process costing- Activity Based Costing- Costing and the value chain- Target costing- Marginal costing including decision making- Budgetary Control & Variance Analysis - Standard cost system.
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Event Report - SAP Sapphire 2024 Orlando - lots of innovation and old challengesHolger Mueller
Holger Mueller of Constellation Research shares his key takeaways from SAP's Sapphire confernece, held in Orlando, June 3rd till 5th 2024, in the Orange Convention Center.
Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
Top mailing list providers in the USA.pptxJeremyPeirce1
Discover the top mailing list providers in the USA, offering targeted lists, segmentation, and analytics to optimize your marketing campaigns and drive engagement.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
In the Adani-Hindenburg case, what is SEBI investigating.pptxAdani case
Adani SEBI investigation revealed that the latter had sought information from five foreign jurisdictions concerning the holdings of the firm’s foreign portfolio investors (FPIs) in relation to the alleged violations of the MPS Regulations. Nevertheless, the economic interest of the twelve FPIs based in tax haven jurisdictions still needs to be determined. The Adani Group firms classed these FPIs as public shareholders. According to Hindenburg, FPIs were used to get around regulatory standards.
An introduction to the cryptocurrency investment platform Binance Savings.Any kyc Account
Learn how to use Binance Savings to expand your bitcoin holdings. Discover how to maximize your earnings on one of the most reliable cryptocurrency exchange platforms, as well as how to earn interest on your cryptocurrency holdings and the various savings choices available.
Buy Verified PayPal Account | Buy Google 5 Star Reviewsusawebmarket
Buy Verified PayPal Account
Looking to buy verified PayPal accounts? Discover 7 expert tips for safely purchasing a verified PayPal account in 2024. Ensure security and reliability for your transactions.
PayPal Services Features-
🟢 Email Access
🟢 Bank Added
🟢 Card Verified
🟢 Full SSN Provided
🟢 Phone Number Access
🟢 Driving License Copy
🟢 Fasted Delivery
Client Satisfaction is Our First priority. Our services is very appropriate to buy. We assume that the first-rate way to purchase our offerings is to order on the website. If you have any worry in our cooperation usually You can order us on Skype or Telegram.
24/7 Hours Reply/Please Contact
usawebmarketEmail: support@usawebmarket.com
Skype: usawebmarket
Telegram: @usawebmarket
WhatsApp: +1(218) 203-5951
USA WEB MARKET is the Best Verified PayPal, Payoneer, Cash App, Skrill, Neteller, Stripe Account and SEO, SMM Service provider.100%Satisfection granted.100% replacement Granted.
Kseniya Leshchenko: Shared development support service model as the way to ma...Lviv Startup Club
Kseniya Leshchenko: Shared development support service model as the way to make small projects with small budgets profitable for the company (UA)
Kyiv PMDay 2024 Summer
Website – www.pmday.org
Youtube – https://www.youtube.com/startuplviv
FB – https://www.facebook.com/pmdayconference
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Premium MEAN Stack Development Solutions for Modern BusinessesSynapseIndia
Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
Know more: https://www.synapseindia.com/technology/mean-stack-development-company.html
6.
Cost object is anything for which a separate
measurement of costs is desired.
Direct costs of a cost object are costs that are
related to the particular cost object and can be
traced to it in an economically feasible way.
Indirect costs of a cost object are costs that are
related to the particular cost object but cannot be
traced to it in an economically feasible way.
Cost pool is a grouping of individual cost items.
Cost allocation base is a factor that is the
common denominator for systematically linking an
indirect cost or group of indirect costs to a cost
8. ABSORPTION COSTING
A managerial accounting cost method of
expensing all costs associated with
manufacturing a particular product.
Absorption costing uses the total direct costs
and overhead costs associated with
manufacturing a product as the cost base.
9. INVENTORY COSTS IN ABSORPTION
inventory costs are made up of the following
under Absorption Costing:
• Direct Labor;
• Direct Materials; and
• Manufacturing Overhead (regardless of
whether it is fixed or variable)
10.
Under absorption costing system, the
product cost consists of all variable as well
as all fixed manufacturing costs i.e., direct
materials, direct labor and factory overhead
(FOH).
12. VARIABLE/DIRECT COSTING
Method in which the cost of a product or
operation is determined by allocating to it an
appropriate portion of the variable (direct)
costs.
Direct costing treats fixed costs (overheads
such as administrative and selling costs) as
period costs (associated with time and
not output).
13.
When variable costing system is used, the
fixed cost (both manufacturing and nonmanufacturing) is treated as a period or
capacity cost and therefore is not included in
the product cost.
15. SAMPLE
A company manufactures and sells 5000 units of product X per year .
Suppose one unit of product X requires the following costs:
Direct materials: $5 per unit
Direct labor: $4 per unit
Variable manufacturing overhead: $1 per unit
Fixed manufacturing overhead: $20,000 per year
The unit product cost of the company is computed as follows:
Absorptio
n Costing
$5
$4
$1
$4*
——$14
Variable
Costing
$5
$4
$1
——$10
16.
Sunshine company produces and sells only washing machines. The
company uses variable costing for internal reporting and absorption costing
for external reporting. The data for the year 2010 is given below:
Direct materials
Direct labor
variable manufacturing overhead
Fixed manufacturing overhead
Fixed marketing and administrative
expenses
Variable marketing and
administrative expenses
$150/unit
$45/unit
$25/unit
$160,000 per year
$110,000 per year
$15/unit sold
Company produced and sold 8,000 machines during the year 2010.
Required: Compute unit product cost under variable costing and absorption
costing.
19. 19
Absorption costing
Treatment for Fixed
fixed
manufacturing
manufacturing overheads are
overheads
treated as product
costing. It is
believed that
products cannot be
produced without
the resources
provided by fixed
manufacturing
overheads
Marginal costing
Fixed manufacturing
overhead are treated
as period costs. It is
believed that only the
variable costs are
relevant to decisionmaking.
Fixed manufacturing
overheads will be
incurred regardless
there is production or
not
20. 20
Value of
closing stock
Absorption costing
High value of
closing stock will be
obtained as some
factory overheads
are included as
product costs and
carried forward as
closing stock
Marginal costing
Lower value of
closing stock that
included the variable
cost only
21. 21
Absorption costing
Marginal costing
Reported If the production = Sales, AC profit = MC Profit
profit
If Production > Sales, AC profit > MC profit
As some factory overhead will be deferred as
product costs under the absorption costing
If Production < Sales, AC profit < MC profit
As the previously deferred factory overhead
will be released and charged as cost of goods
sold
23. 23
Compliance with the generally accepted accounting
principles
Importance of fixed overheads for production
Avoidance of fictitious profit or loss
During the period of high sales, the production is small
than the sales, a smaller number of fixed manufacturing
overheads are charged and a higher net profit will be
obtained under marginal costing
Absorption costing is better in avoiding the fluctuation of
profit being reported in marginal costing
25. 25
More relevance to decision-making
Avoidance of profit manipulation
Marginal costing can avoid profit manipulation by
adjusting the stock level
Consideration given to fixed cost
In fact, marginal costing does not ignore fixed costs in
setting the selling price. On the contrary, it provides
useful information for break-even analysis that indicates
whether fixed costs can be converted with the change in
sales volume
27. TRADITIONAL COSTING
The allocation of manufacturing overhead
(indirect manufacturing costs) to products on the
basis of a volume metric such as direct labor
hours or production machine hours.
As manufacturing becomes more sophisticated
the manufacturing overhead costs usually
increase while the direct labor hours or
production machine hours decrease. Hence, the
direct labor or machine hours are unlikely to be
the root cause of the manufacturing overhead
28. EXPENSE ALLOCATIONS
Traditional cost accounting systems
assign operating expenses to products
with a two-stage procedure:
1. Expenses are assigned to production
departments
2. Production department expenses are
assigned to the products
Departmental structure influences the
first-stage allocation process
29. EFFECT OF DEPARTMENTAL STRUCTURE
Departments that have direct responsibility
for converting raw materials into finished
products are called production
departments
Service departments perform activities
that support production, such as:
• Machine maintenance
• Production engineering
• Machine setup
• Production scheduling
– All service department costs are indirect support
activity costs because they do not arise from direct
production activities
30. TWO-STAGE COST ALLOCATION
Conventional product costing systems assign
indirect costs to jobs or products in two stages
1.
In the first stage:
2.
System identifies indirect costs with various
production and service departments
Service department costs are then allocated to
production departments
The system assigns the accumulated indirect
costs for the production departments to
individual jobs or products based on
predetermined departmental cost driver rates
32. ALLOCATING SERVICE DEPARTMENT
COSTS TO PRODUCTION DEPARTMENTS
There are three ways that companies
allocate service department costs to
production departments:
Direct
allocation
Sequential allocation
Reciprocal allocation
The last two are used when service
departments consume services provided by
other departments
34. DIRECT ALLOCATION METHOD
The direct allocation method is a simple
method that allocates the service
department costs directly to the production
departments
Allocations
to production departments are
based on each production department’s
relative use of the applicable cost driver
Possibility that some of the activities of a
service department may benefit other service
departments as well as production
departments is ignored
38. STAGE 2 COST ALLOCATIONS
Stage 2 allocations
Require the identification of appropriate cost drivers
for each production department
Assign production department costs to jobs and
products while they are worked on in the departments
Conventional cost accounting systems use unitrelated cost drivers
Dividing the indirect costs accumulated in each
production department by the total number of
units of the corresponding cost driver results in
cost driver rates for each department
39. PATIENTAID STAGE 2
The Casting Department allocates its indirect
costs to jobs based on machine hours, with total
capacity for Casting equaling 6,000 machine
hours
Total indirect costs for Casting, after the
allocation from service departments in Step 2 of
Stage 1 was $216,000
As a result, Casting allocates indirect costs to
jobs at a rate of $36.00 per machine hour
= $216,000/6,000 hours
40. PATIENTAID STAGE 2
If Job J189-4 uses 40 machine hours while in the
Casting Department, Casting will allocate $1,440
of its indirect costs to Job J189-4
=
40 hours x $36.00 per hour
Each department will allocate indirect costs to
Job J189-4 in a similar manner, and Casting will
allocate some costs to all jobs in a similar manner
To determine the total cost of Job J198-4, add the
Direct Material and Direct Labor cost assigned in
each department and the indirect cost allocated
from each department
To determine the cost per unit, divide the total
cost by the number of units in Job J189-4
42. ACTIVITY-BASED COSTING (OVERHEAD)
An accounting method that identifies the
activities that a firm performs, and then
assigns indirect costs to products.
An activity based costing (ABC) system
recognizes the relationship between costs,
activities and products, and through this
relationship assigns indirect costs to
products less arbitrarily than traditional
methods.
43. assigns manufacturing overhead costs to
products in a more logical manner than the
traditional approach of simply allocating costs
on the basis of machine hours.
Activity based costing first assigns costs to the
activities that are the real cause of the
overhead.
It then assigns the cost of those activities only
to the products that are actually demanding the
activities.
44. WHAT IS ACTIVITY BASED COSTING?
Activity
Based Costing (ABC)
involves the identification of the
factors which cause the costs of
an organisation’s major
activities.
45. INTRODUCTION
The direct costs are easy to ascertain as one
knows the labour and material, etc. that went
into the product.
The indirect cost of overheads are quite
different.
This unit will introduce Absorption Costing
(traditional costing) and then compare it to
Activity Based Costing.
The unit then looks at Activity Based Costing in
more detail by recognising the types of cost
drivers, designing an ABC system, and, finally,
considering the Resource Consumption Model.
46. STAGES OF EXPENSE ALLOCATION
ACTIVITY BASED
COSTING
STAGE 1 allocates indirect costs
to cost centres
TRADITIONAL
COSTING
allocates indirect costs
to cost centres
STAGE 2 use many different types
of volume-based and
non volume-based
cause and effect second
stage
drivers.
uses a limited
number of different
types of second stage
volume-based allocation
47. REASONS FOR DEVELOPMENT OF ABC
Modern manufacturing environment
An increase in support services (such as
production scheduling).
These
services assist in the manufacture of a wide
range of products.
They are unaffected by changes in production
volume.
They vary instead with the range and complexity
of products.
An increase in overheads as a proportion of
total costs.
48. INADEQUACIES OF ABSORPTION COSTING
Implies all overheads are related to production
volume.
Developed at a time when organisations
produced only a narrow range of products and
when overheads were only a small fraction of total
costs.
Tends to allocate too great a proportion of
overheads to high-volume products (which cause
relatively little diversity) and too small a proportion
to low-volume products (which cause greater
diversity and use more support services).
50. ABSORPTION COSTING [TRADITIONAL METHOD]
Absorption
costing is an old method of
product costing which aims to include
in the total cost of a product (unit, job
and so on) an appropriate share of an
organisation’s total overhead.
Product costs are built up using
absorption costing by a process of
allocation,
apportionment
and
overhead absorption.
51. STAGES TO APPORTIONING OVERHEADS
(1) The first stage of overhead apportionment
involves sharing out (or apportioning) the
overheads within general overhead cost centres
between the other cost centres using a fair basis
of apportionment.
(2) The second stage of overhead apportionment is
to apportion the costs of service cost centres (both
directly allocated and apportioned costs) to
product cost centres.
The final stages (stage 3 and 4) in absorption
costing is the absorption into product costs (using
overhead absorption rates) of the overheads
which have been allocated and apportioned to the
product cost centres.
52. COMPUTE
A company is preparing its production overhead budgets and
determining the apportionment of those overheads to
products. Cost centre expenses and related information have
been budgeted as follows.
53. REQUIRED
Calculate overhead totals for all departments
by using direct apportionment as an
appropriate basis for apportionment.
Note: Service overheads of stores and
maintenance are allocated on the basis of
direct
labour
and
machine
usage
respectively.
54. STAGE 1
1.
The Indirect Expense of Materials and indirect
wages can be directly allocated to the
production cost centres XYZ and to the service
department’s stores and maintenance (as
these actually occurred in the departments).
2. The overheads of Rent and Rates, Building
Insurance, Power, light and heat, and
depreciation need to be apportioned (i.e. shared
out) using a fair and suitable basis.
55. CONT...
We could use:
(i) value of machinery
(ii) power
(iii) direct labour hours
(iv) machine hours, and
(v) Area
Which would be the most appropriate basis to
use for rent and rates?
From this list the most suitable is area.
57. THE SAME APPROACH OF APPOINTMENT WAS ADOPTED FOR
INSURANCE, POWER HEAT AND HIGH AND DEPRECIATION. THE
BASIS FOR APPOINTMENT HAS BEEN SHOWN ON THE RIGHT
HAND SIDE OF THE TABLE
58. IN THE TABLE IT CAN BE SEEN THAT THE SERVICE COST OF £33,011 (STORES)
AND £21,572 (MAINTENANCE) NEEDS TO BE REAPPORTIONED TO THE
PRODUCTION UNITS. A SUITABLE BASIS FOR REAPPORTIONING STORES
APPEARS TO BE DIRECT LABOUR AND MAINTENANCE MACHINE USAGE.
Therefore, using direct labour to reapportion
stores
61. ABSORPTION RATES ARE:
X = 58672/ 10000
= £5.87
Y = 67502/ 10000
= £6.75
Z = 49786/ 10000
= £2.49
62. STEP 4
Assigning cost-centre overheads to products
Now suppose: Direct costs were £120 per unit.
Total number of units for Product A was 100. Each
department takes 1 hour to produce Product A:
65. ABSORPTION COSTING METHOD
699.40
879.40
23,079.4
0
56,459.40
43.97
Direct costs for ABC are exactly the same as for
Absorption Costing. Observe carefully how the cost
drivers (scheduling and material handling) are multiplied
by the number of runs to obtain the overhead amount for
the products.
67. OVERHEAD CALCULATIONS
Total overheads/ Machine hours = Absorption Rate
Machine hours (3)
A 20x1
= 20
B 20x2
= 40
C 200 x 1
= 200
D 200 x 2
= 400
Total
= 660
Absorption rate = Total overheads/ Machine hours
= 23080/ 660
= £34.97 per machine hour
Overheads (4)
A £34.97 x 1hr x 20
= £699.40
B £34.97 x 2hr x 20
= £1,398.80
C £34.97 x 1 x 200
= £6,994
D £34.97 x 2 x 200
= £13,988
71. CONCLUSION
The figures suggest that the traditional volume-based
absorption costing system is flawed.
(a) It under allocates overhead costs to low-volume
products (here A and B) and over-allocates
overheads to higher-volume products (here Z in
particular)
(b) It under allocates overhead costs to smaller-sized
products (here A and C with just one hour of work
needed per unit) and over allocates overheads to
larger products (here B and D)
72. COST DRIVERS
A cost driver is a factor which causes a
change in the cost of an activity.
73. VOLUME-BASED AND NON-VOLUME-BASED COST
DRIVERS
ABC systems rely on a greater number and
variety of second stage cost drivers. The term
‘variety of cost drivers’ refers to the fact that
ABC systems use both volume-based and non
volume-based cost drivers.
Volume-based drivers are appropriate where
the activities are performed each time a unit of
the product or service is produced. In contrast,
non-volume related activities are not performed
each time aunit of the product or service is
produced.
74. ACTIVITY COST DRIVERS
Activity cost drivers consist of transaction
and duration drivers.
Transaction drivers, such as the number of
purchase orders processed, number of
customer orders processed, number of
inspections performed and the number of
set-ups undertaken, all count the number
of times an activity is performed.
75. DESIGNING AN ABC SYSTEM
Step 1 Identify an organisation’s major activities.
Activities are identified by carrying out activity
analysis.
Step 2 Identify the factors which determine the
size of the costs of
an activity/cause the costs of an activity. These are
known as cost drivers.
Step 3 Collect the costs associated with each
cost driver into what are known as cost pools.