Cost-Accumulation--Tracing--and-Allocation.ppt

1、Cost Accumulation,Tracing,and AllocationChapter 5Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-2IntroductionDid costs increase or decrease from last year?Who isresponsible?Were actual costsconsistent withexpected costs?Is our selling pricesufficient to cover costsand provide foradequate profita

2、bility?Who shouldbe rewarded?How can improvementbe accomplished?What is our costof goods sold?What is ourinventory cost?Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-3Using Cost Drivers to Accumulate CostsMachinehoursLabourhoursUnitsproducedKilometresdrivenA cost driver is anyfactor that causes

3、 or“drives”an activitys costsCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-4Using Cost Drivers to Accumulate Costs Accumulated Minutes Rate per Cost Talked Minute Minutes TalkedTotal Long DistanceTelephone Bill=Minutes talked isthe cost driver.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-

4、5Estimated Versus Actual CostEstimated CostsManagers use estimated costs tomake decisions about the future.Actual CostsKnowledge of actual costs,after the fact,may not be useful for planning and decision making.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-6Estimated Versus Actual CostRelevantP

5、otentialInaccuraciesTimelyEstimated CostsManagers use estimated costs tomake decisions about the future.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-7Estimated Versus Actual CostEstimated CostsMay be used to set prices,make bids,evaluate proposals,distribute resources,plan production,and set g

6、oals.RelevantPotentialInaccuraciesTimelyCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-8Assigning Cost to Objects in a Retail BusinessStyle,Inc.Department Store pays a bonus to eachdepartment manager based on departmental sales.The incentive has increased departmental sales,but departmental prof

7、its have not increased accordingly.Management has decided to base future bonuseson department profitability.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-9Assigning Cost to Objects in a Retail BusinessThe first step in the development of the new bonusstrategy is to determine the costs of each d

8、epartment.Costs that are easily traced todepartments are called direct costs.Costs that cannot be easily traced todepartments are called indirect costs.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-10Assigning Cost to Objects in a Retail BusinessCopyright 2003 McGraw-Hill Ryerson Limited,Canada

9、5-11Assigning Cost to Objects in a Retail BusinessDirect and indirect costs may be either fixed or variable.A cost can be either direct or indirectdepending on the cost object.The store manager salary is indirect to any onedepartment,but is directly traceable to the store.Copyright 2003 McGraw-Hill

10、Ryerson Limited,Canada5-12Allocating Indirect Costs to DepartmentsIdentify the most appropriate costdriver for each indirect cost.Indirect costs should be allocated to reflecthow the departments consume resources.Style,Inc.chosethese cost drivers:Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-13

11、Allocating Indirect Costs to DepartmentsUse a two-step process to allocate indirect costs:Allocation rate=total cost cost driver activity.Allocated cost=allocation rate weight of the cost driver activity.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-14Assigning Cost to Objects in a Retail Busin

12、ess$9,360 3 departments=$3,120 per department$3,120 1 department=$3,120Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-15Assigning Cost to Objects in a Retail Business$18,400 23,000 square metres =$0.80 per square metre$0.80 12,000 Womens square metres=$9,600$0.80 7,000 Mens square metres=$5,600$

13、0.80 4,000 Childrens square metres=$3,200Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-16Assigning Cost to Objects in a Retail Business$2,300 23,000 square metres =$0.10 per square metre$0.10 12,000 Womens square metres =$1,200$0.10 7,000 Mens square metres=$700$0.10 4,000 Childrens square metr

14、es=$400Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-17Assigning Cost to Objects in a Retail Business$7,200$360,000 sales =$0.02 per sales dollar$0.02$190,000 Womens sales=$3,800$0.02$110,000 Mens sales=$2,200$0.02$60,000 Childrens sales=$1,200Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-

15、18Assigning Cost to Objects in a Retail Business$900$360,000 sales =$0.0025 per sales dollar$0.0025$190,000 Womens sales=$475$0.0025$110,000 Mens sales=$275$0.0025$60,000 Childrens sales=$150Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-19Assigning Cost to Objects in a Retail BusinessCopyright

16、2003 McGraw-Hill Ryerson Limited,Canada5-20Assigning Cost to Objects in a Retail BusinessNow lets combine thecosts and revenues andsee how departmentalprofitability looks.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-21Assigning Cost to Objects in a Retail BusinessCopyright 2003 McGraw-Hill Rye

17、rson Limited,Canada5-22The Effects of Cost Behaviour on Cost Driver SelectionDoes this mean that I should use different costdrivers for variable andfixed overhead?Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-23Using Volume Measures to Allocate Variable Manufacturing OverheadIncreases in the vo

18、lume of production willcause variable overhead costs to increase.Volume measuresserve as good cost driversfor the allocation ofvariable overhead.UnitsProducedLabourHoursMaterialsUsedCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-24Using Volume Measures to Allocate Variable Manufacturing Overhead

19、Filmier Furniture CompanyProduction and Cost InformationUse the two-step process to allocate indirect materialscost using the three volume measures as cost drivers.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-25Using Volume Measures to Allocate Variable Manufacturing Overhead$60,000 5,000 unit

20、s =$12 per unit$12 per unit 4,000 chairs=$48,000$12 per unit 1,000 tables=$12,000Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-26Using Volume Measures to Allocate Variable Manufacturing Overhead$60,000 6,000 hours =$10 per hour$10 per hour 3,500 hours=$35,000$10 per hour 2,500 hours=$25,000Copy

21、right 2003 McGraw-Hill Ryerson Limited,Canada5-27Using Volume Measures to Allocate Variable Manufacturing Overhead$60,000$1,500,000 of material =$0.04 per$0.04 per$1,000,000=$40,000$0.04 per$500,000=$20,000Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-28Selecting the Best Cost DriverSo which vo

22、lume measure shouldI use?Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-29Selecting the Best Cost DriverJudgement and reasoning are necessary.ConsiderationsRelationship between cost driver activity and use of resources.Availability of information.Copyright 2003 McGraw-Hill Ryerson Limited,Canada

23、5-30Allocating Fixed Overhead CostsObjectiveDistribute a fair share of theoverhead cost to each product.There are novolume based costdrivers forfixed overhead.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-31Allocating Fixed Overhead CostsLednicky Bottling Company InformationUse the two-step pro

24、cess to allocate the rentalcost to units sold and to units in ending inventory.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-32Allocating Fixed Overhead Costs$28,000 2,000,000 units=$0.014 per unit$0.014 per unit 1,800,000 units=$25,200$0.014 per unit 200,000 units=$2,800Copyright 2003 McGraw-H

25、ill Ryerson Limited,Canada5-33Allocating Costs to Solve Timing ProblemsAllocating fixed costs can be complicated when thevolume of production varies from month to month.If prices are based on these costs,units produced inJanuary will be higher than those produced in February.Will customers think thi

26、s is reasonable?Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-34Allocating Costs to Solve Timing ProblemsWe solve this problem by using estimatedcosts and estimated production for the year toobtain a predetermined overhead rate(POHR).Estimated overhead the yearEstimated allocation base for the

27、yearPOHR =$36,00018,000 unitsPOHR =$2.00 per unit$2.00 allocated to each unit producedfor all months during the year.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-35Cost Allocation:The Human FactorIs it fair to dividethe College ofBusiness copybudget equally?I think weconsider the number offacu

28、lty.I think weconsider the number ofstudents.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-36Cost Allocation:The Human FactorLets see how the allocation of budgeted amounts will effect the different departments.We will begin by allocating equal amounts.Copyright 2003 McGraw-Hill Ryerson Limited

29、,Canada5-37Cost Allocation:The Human FactorWho is happy?Who is unhappy?Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-38Cost Allocation:The Human FactorNow lets allocate the$36,000 budget based on the number of faculty in each department.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-39Cost

30、Allocation:The Human FactorWho is happy?Who is unhappy?$36,000 72 faculty=$500 per faculty member$500 29 faculty members=$14,500$500 16 faculty members=$8,000$500 12 faculty members=$6,000$500 15 faculty members=$7,500Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-40Cost Allocation:The Human Fac

31、torNow lets allocate the$36,000 budget based on the number of students in each department.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-41Cost Allocation:The Human FactorWho is happy?Who is unhappy?$36,000 1,200 students =$30 per student$30 per student 330 students=$9,900$30 per student 360 stu

32、dents=$10,800$30 per student 290 students=$8,700$30 per student 220 students=$6,600Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-42Establishing Cost PoolsIndirectCost 1IndirectCost 3IndirectCost 2IndirectCost 4IndirectCost 5Product3Product1Product2This is the problem when we dontuse cost pools

33、to allocate costs.15 allocationsCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-43Establishing Cost PoolsIndirectCost 1IndirectCost 3IndirectCost 2IndirectCost 4IndirectCost 5CostPoolProduct3Product1Product2ThreeallocationsCost pools reduce the numberof cost allocation computations.Contains indir

34、ect costs relatedto a common cost driver.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-44Allocating Joint CostsJoint CostsProductProductProductCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-45Key termsJoint products products resulting from a process with a common input.Split-off point the s

35、tage of processing where joint products are separated.Joint cost costs of processing joint products prior to the split-off point.Allocating Joint CostsCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-46Allocating Joint CostsCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-47Consider the followin

36、g example of an oil refinery.We will assume only two products,gasoline and oil.Allocating Joint CostsCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-48JointInputCommonProductionProcessFinalSaleFinalSaleSplit-OffPointJointCostsOilGasolineSeparateProcessingSeparateProcessing CostsSeparateProcessing

37、SeparateProcessing CostsAllocating Joint CostsCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-49Net realizablevalue methodJoint Cost Allocation MethodsJoint costs are allocated based on a relative measure(weight,volume,etc.)of the products atthe split-off point.Physicalquantities methodJoint cost

38、s areallocated based onthe relative valuesof the products at the split-off point.Relative Sales Value MethodCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-50Lets look at anexample illustratingthe joint costallocation methods.Joint Cost Allocation MethodsCopyright 2003 McGraw-Hill Ryerson Limited

39、,Canada5-51CommonProductionProcessSplit-OffPointOilGasolinePhysical Quantities Method240,000 litres360,000 litresJoint materialcost=$275,000Joint conversioncost=$225,000Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-52Physical Quantities MethodCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-5

40、3Physical Quantities MethodCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-54Physical Quantities Method$225,000 joint conversion cost plus$275,000 joint material costCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-55Joint materialcost=$275,000CommonProductionProcessSplit-OffPointJoint conversi

41、oncost=$225,000OilGasolineRelative Sales Value Method$200,000sales value atsplit-off point$600,000sales value atsplit-off pointCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-56Relative Sales Value MethodCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-57Relative Sales Value MethodCopyright 200

42、3 McGraw-Hill Ryerson Limited,Canada5-58$225,000 joint conversion cost plus$275,000 joint material costRelative Sales Value MethodCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-59By-ProductsJointInputJointProductionProcessSplit-OffPointJointCostsBy-productsRelatively lowvalue relative tomajor pr

43、oducts.MajorProductMajorProductCopyright 2003 McGraw-Hill Ryerson Limited,Canada5-60Joint Costs and the Issue of RelevanceThe allocated portion of a joint cost is not relevant to a decision regarding further processing.A product should be processed beyond the split-off point only if if the incremental revenue exceeds the incremental processing costs.Copyright 2003 McGraw-Hill Ryerson Limited,Canada5-61 End of Chapter 55