Managerial Accounting: Chapter 4, Activity Based Costing & Cost Management – Flashcards
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ABC costing
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the accounting method that assigns INDIRECT MOH costs to products and services using as single volume-based cost driver
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Can the ABC costing method have multiple activity pools and multiple cost drivers?
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YES
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Is splitting up the cost pool more accurate?
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YES
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What are the three steps to assigning indirect costs to a volume-based cost system?
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1. Determine the cost driver (allocation base) 2. Calculate the predetermined overhead rate 3. Assign indirect costs to individual products & services using the POHR
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Which costing system has cost pool, and one cost driver?
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The traditional costing system (CH.2)
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Traditional Cost System
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uses predetermined overhead rates
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ABC Cost System
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uses activity rates
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Traditional costing vs. ABC costing
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Traditional: 1. POHR 303,560/55,000=5.5193 per machine hour 2. POHR x actual cost driver Standard: 25,000 x 5.5193= 137983 Deluxe: 30,000 x 5.5193= 165579 ABC: 1. Activity rate MH: 140,000/1,400= 100 material moves Set up: 163,560/580= 282 set ups 2.Activity rate x actual cost driver Standard: 550 x 100= 55,00 80 x 282=22,560 Total ovehead 77,560 Deluxe: 850 x 100=85,000 500 x 282=141,000 Total overhead 226,000
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Using activity rates, determine the amount of quality control cost to be assigned to each of Acoma's product lines.
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Total cost pool/the cost driver Ex: 169,500/11,300 macine hours = 15.0 per machine hour
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Find estimated direct labor hours
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Direct labor/direct labor rate
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Acoma Co. has identified one of its cost pools to be quality control and has assigned $54,530 to that pool. Number of inspections has been chosen as the cost driver for this pool; Acoma performs 26,600 inspections annually. Suppose Acoma manufactures two products that consume 9,044 (Product 1) and 17,556 (Product 2) inspections each. **Assume that Acoma manufacturers only the two products mentioned and they consume 100 percent of the company's quality inspections. Using activity proportions, determine how much quality control cost will be assigned to each of Acoma's product lines.
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step 1. Activity Rate: 125,000/25,000 = 5 step 2. Product 1: 10,000x5=50,000 Product 2: 15,000x5=75,000 Check: 50,000+75,000= 125,000 **Step 3. 1. Inspections by product/total # of inspections product 1 product 2 10,000/25,000 15,000/25,000 = 40% = 60% 2. Activity cost x Activity porportion product 1 product 2 125,000 125,000 x 40%. x 60% =50,000 = 75,000 check: 50,000+75,000=125,000
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Target cost
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Market price-target profit= target cost 1,800- (26%x 1,800)=1,332
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Gross profit
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Sales revenue-Cogs OR Sales price per unit-unit cost
