Kế toán, kiểm toán - Chapter twelve: Cost accumulation, tracing, and allocation

Chapter TwelveCost Accumulation, Tracing, and Allocation© 2015 McGraw-Hill Education.Chapter OpeningManagers must have reliable cost estimates to: Price products. Evaluate performance. Control operations. Prepare financial statements.What does it cost? 12-2Determine the Cost of Cost ObjectsCost accumulation begins with identifying: Cost objectsCost driversA cost object is anyactivity, product, or serviceto which accountants wishto trace costs. 12-3Use of Cost Drivers to Accumulate CostsMachinehoursMilesdrivenLaborhoursUnitsproducedA cost driver is anyfactor that causes or “drives”an activity’s costs 12-4Estimated Versus Actual CostPotentialInaccuraciesTimelyRelevantEstimated CostsManagers use estimated costs tomake decisions about the future. 12-5The first step in the development of the new bonusstrategy is to determine the costs of each department.Costs that can be traced to departments in acost-effective manner are called direct costs.Costs that cannot be traced to departments in acost-effective manner are called indirect costs.Identifying Direct andIndirect Costs 12-6Identifying Direct andIndirect Costs 12-7Aggregating and Disaggregating Individual Costs into Cost PoolsGasWaterElectricityUtilities Cost PoolFrequently, companies accumulate many individual costs into a single cost pool.Pooling should be limited to costs with common cost drivers. 12-8Selecting the Best Cost DriverSo which volume measure shouldI use? Judgment and reasoning are necessary.ConsiderationsRelationship between cost driver activity and use of resources.Availability of information. 12-9Allocating Indirect Coststo DepartmentsIdentify the most appropriate costdriver for each indirect cost.Indirect costs should be allocated to reflecthow the departments consume resources. The cost drivers of In Style, Inc. are: 12-10Allocating Indirect Coststo 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. 12-11 $9,360 ÷ 3 departments = $3,120 per department $3,120 × 1 department = $3,120Allocating Indirect Coststo Departments 12-12 $18,400 ÷ 23,000 square feet = $0.80 per square foot $0.80 × 12,000 Women’s square feet = $9,600 $0.80 × 7,000 Men’s square feet = $5,600 $0.80 × 4,000 Children’s square feet = $3,200Allocating Indirect Coststo Departments 12-13 $2,300 ÷ 23,000 square feet = $0.10 per square foot $0.10 × 12,000 Women’s square feet = $1,200 $0.10 × 7,000 Men’s square feet = $700 $0.10 × 4,000 Children’s square feet = $400Allocating Indirect Coststo Departments 12-14 $7,200 ÷ $360,000 sales = $0.02 per sales dollar $0.02 × $190,000 Women’s sales = $3,800 $0.02 × $110,000 Men’s sales = $2,200 $0.02 × $60,000 Children’s sales = $1,200Allocating Indirect Coststo Departments 12-15 $900 ÷ $360,000 sales = $0.0025 per sales dollar $0.0025 × $190,000 Women’s sales = $475 $0.0025 × $110,000 Men’s sales = $275 $0.0025 × $60,000 Children’s sales = $150Allocating Indirect Coststo Departments 12-16Allocating Indirect Costs to Departments 12-17Using Volume Measures to Allocate Variable Overhead CostsIncreases in the volume of production willcause variable overhead costs to increase.Volume measuresserve as good cost driversfor the allocation ofvariable overhead.UnitsProducedLaborHoursMaterialsUsed 12-18Allocating Fixed Overhead CostsObjectiveDistribute a fair share of theoverhead cost to each product.There are novolume based costdrivers forfixed overhead. 12-19Allocating 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 priced higher than those produced in February.Will customers think this is reasonable? Allocating Costs to Solve Timing Problems 12-20Allocating Fixed Costs When the Volume of Production VariesWe solve this problem by using estimatedcosts and estimated production for the year toobtain a predetermined overhead rate (POHR). Estimated overhead for the yearEstimated allocation base for the yearPOHR =$36,00018,000 unitsPOHR = = $2.00 per unit$2.00 allocated to each unit producedfor all months during the year. 12-21Cost Allocations Have Behavioral ImplicationsUsing inappropriate cost drivers can distort allocations and lead managers to make choices that are detrimental to the company’s profitability. Cost allocations significantly affect individuals. They may influence managers’ performance evaluations and compensation. They may dictate the amount of resources various departments, divisions, and other organizational subunits receive. 12-22End of Chapter Twelve 12-23