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### FNSACCT613A Management Accounting Applications (2010s1)

teacher: Ian Linon, G713
location: 728 mon 5:30pm
week/topic
1. Activity Based Costing
2. Activity Based Costing
3. Absorption / Direct Costing
4. Absorption / Direct Costing
5. Process Costing
6. Process Costing
7. test1
8. Operations Costing
Autumn Vacation
9. Operations Costing
10. Joint - By Product
11. Joint - By Product
12. Standard Cost
13. Standard Cost
14. Standard Cost
15. test2
16. Feedback
17. -
18. -

week 1

## Activity Based Costings (ABC)

ch11

• 1: allocated OHs to departments
• 2: allocate total department OHs to units of production by that department
• 3: OHs allocated to products based on units of production

### Activity Based Costing (ABC method)

1. allocate OHs to cost driver
2. cost driver rates for each driver
3. allocate OHs products based on the amount of activity each product uses

eg. Picard, past exam question, View
{total FOH / DL hours}
480,000 / 4800 = 100 per direct labour hour

ii) ABC method
{total cost of cost driver / total units of cost driver}
machining 150,000 / 3,000 = 50 per machine hour
power 120,000 / 4,000 = 30 per kilowatt hour
materials handling 160,000 / 5,000 = 32 per requisition
inspection 50,000 / 500 = 100 per inspection

b) cost per unit for both products
 cost per unit ship mounted unit portable unit DM 80 95 DL 160 160 OH applied {budgeted} {100*4} 400 {100*4} 400 640 655

ii) ABC method
{see homework for layout example}

homework: Aylesbury (past exam)

week 2
in  class continued topic with more examples

homework: Beagle,

week 3

## Absorption Costing and Direct Costing (ACDC)

ch9
• 2 different kinds of revenue statements, 1 for internal, and 1 for external and tax
• Absorption costing: treats factory overhead as a product cost, as it is necessarily incurred in production
• Direct costing: treats fixed factory overhead as a period cost; fixed costs are dependent on time, not on the level of production; fixed costs are written off on the income statement as a period expense, not as part of COGS
• In AC the Cost of production (COP) = DM + DL + Fixed and Variable OH
• Both DM and DL are variable expenses, while OH has both Variable and Fixed components
• In DC the COP = DM + DL + Variable FOH
• The difference is the treatment of fixed FOH
• Under DC the missing fixed FOH (in COP) is totally written off at the bottom (a period cost)
• Under AC fixed FOH is present in stock on hand, hence transferred to the next period. Consequently profits will be different under both types of reports. We have to reconcile this difference.
• accounting differences: inventory valuation for finished goods and WIP inventories and income determination
• AASB 102 permits only Absorption Costing for inventory valuation in external reports. This is also consistent with taxation ruling, Phillip Morris Ltd v F.C of T.
Steps:

1) Calculate the unit cost under both AC and DC
 AC DC DM {actual} xx {same} xx {same} DL {actual} xx {same} xx {same} OH variable xx {same} xx {same} fixed {budget fixed OH * budget capacity} xx 0 unit cost xx xx

2) Calculate under applied or over applied OH variance
 AC DC actual OH variable {total actual} xx xx fixed {total actual} xx 0 less applied OH variable    {budgeted rate * actual produced units} xx xx fixed    {budgeted rate * actual produced units} xx 0 under/over applied variance xx x
• Under applied OH to be added to COGS
• Over applied OH to be deducted from COGS
3) AC Income Statement and DC Income Statement
 Absorption Costing  Income Statement Direct Costing  Income Statement Sales   less COGS GP +/- variance adjusted GP   less other expenses   {period costs} NP Sales   less COGS   {without fixed FOH} Contribution Margin +/- variance adjusted GP   less expenses   {with fixed FOH} NP

5) Reconciliation
 \$ AC NP xx add fixed OH in opening stock {\$ x * y units} xx less fixed OH  in closing stock {\$ x1 * y1 units} (xx) DC NP xxxx

p360 q17

homework: Gabbie (past exam) View

week 4
in  class continued topic with more examples

homework: p656 Blackwood

week 5

## Process Costing (PC)

• PC is used by companies which make use of like products , eg. supermaket goods.
• Costs are accumulated for a particular process over a period of time and when divided by the number of units produced gives the average cost per unit needed for stock valuation.
• There is difficulty in valuing closing stock when production is not yet complete (there is WIP). The easiest course of action is to convert those units which are partly finished into the equivalent number of units which are fully finished.
eg. 1,000 units that are 75% complete is equivalent to 750 units which are 100% complete. The cost per unit can now be applied to the 750 units.
• We will use The Boxes Method (p418-421); ignore Alternative Presentation (p422-427). Follow the steps in the handout: View

### Cost of production schedule

 total DM DL OH ea \$ ea \$ ea \$ ea \$ WIP_start current total FG n/a n/a n/a WIP_end total
• if using FIFO then use current line to calculate unit cost to be used for WIP_end
• if using Weighted Average then use total line to calculate unit cost to be used for WIP_end

homework: p451 q7 q8

week 6

### Normal spoilage / Abnormal spoilage

• normal spoilage
• has no cost only quantity
• the cost is assumed by the value of finished goods
• there is always some amount of normal spoilage
• abnormal spoilage
• is written off separately
• can be caused by an abnormal event
• is above normal spoilage
 total DM DL OH ea \$ ea \$ ea \$ ea \$ WIP_start current total FG n/a n/a n/a spoilage WIP_end total

in  class continued topic with more examples

test1 hint:
• start 5:45
• 1h45m
• 3 topics
• homework / practice p464q29: answer
• FG ~ 924,156 (likely higher) [1,054,126],
• abnormal spoilage 37,544,
• WIP end 157,274

week 7
test1

week 8

## Operations costing

• Is half way between job costing (MAP) and where material/labour/overhead for each product was different
AND
Process costing material/labour/overhead are much the same for each product
• Problems will arise here because not all products will share the same operations
eg. p477st1
batch 22 (alpha buzzer)
 operation 1   DM   DL   Applied OH operation 2   DM   DL   Applied OH operation 3   nil COSTS 3,000.00 3,000.00 937.50 6,937.50 6,937.50 6,000.00 15,000.00 27,937.50 0 \$12 per hour *.25 hour * 1000 buzzers 3.75 {30,000/8,000} * 250 12*.5*1000 \$20,000/1,000 machine hours *.75  -> to FG EA 6.9375 27.9375

journals
 DR WIP(1)    CR Raw materials    CR Factory Labour    CR Factory OH applied 6937.50 3,000.00 3,000.00 937.50 DR WIP (2)    CR WIP (1)    CR Factory Labour    CR applied OH 27,937.50 6937.50 6,000.00 15,000.00 DR FG    CR WIP (2) 27,937.50 27,937.50

homework p488q7 View

week 9
did more examples in class, including past exam questions

no homework

week 10

week 11

## Joint costing (JC) and by product costing

• When several products emerge from a "joint process" problems arise in how much joint costs (JC) do we assign to each different product.
• We have to assign costs to each product for stock valuation / profit reporting / pricing decisions.

### Physical units method

• One way to value units of x y z is to use "physical" units
• use production units ratio (production to total) to allocate total JC
• eg.
joint process
\$200,000 joint costs
5,000 units X
10,000 units y
20,000 units z (z gets most of the joint cost)
 x y z production units 5,000 10,000 20,000 35,000 joint cost allocated \$ 28,571 57,143 114,286 200,000 {5000/35000*200000} units cost \$ 5.71 5.71 5.71 {28,571/5000}

### Net realisable value method (NRV)

• aka relative sales value method
• Another way to allocate the joint costs is by using the net realisable value method. Joint costs will be allocated according to the "net sales value" of each product. Be sure to use Units produced x Selling price (not units sold x selling price)
• use NRV ratio (product to total) to allocate total JC
• eg.
all products can be sold at split off from the joint process (they need no further production or DM, DL, OH)
 x y z production units 5,000 10,000 20,000 35,000 selling price 50 10 5 NRV \$ 250,000 100,000 100,000 450,000 joint costs allocated \$ 111,111 44,444 44,445 200,000 {250000/450000*200000, use NRV for ratio instead of production units} unit cost \$ 22.22 4.44 2.22

#### NRV with Costs after split off method (CASO)

• the following additional production costs are incurred
x \$55,000
y \$20,000
z \$nil
 x y z production units 5,000 10,000 20,000 35,000 selling price \$ 50 10 5 GRV - CASO = NRV 250,000-55,000=195,000 100,000-20,000=80,000 100,000-0=100,000 450,000-75,000=375,000 JC + CASO = TC 104,000+55,000=159,000 42,667+20,000=62,667 53,333+0=53,333 200,000+75,000=275,000 unit cost \$ 31.80 6.27 2.67

p507st2
solution View

#### By product

• It is a product which is fairly insignificant in terms of economic value which comes out of a joint process.
• See eg. p510-511, the NRV of the by product is  \$255. This is deducted from the joint costs (\$18,300-255=\$18,045) and this becomes the amount to allocate to the main products.
• Do the by product NRV calculation first before you do the physical units method or NRV method to allocate remaining joint costs.

homework: p524q11

week 12
in class did past exam questions

homework: finish handout questions View View View

week 13

## Standard costing

You need to workout:
• 7 variances and identify if favourable or unfavourable (reasons for them occurring usually not asked):
• materials (p544)
• materials price variance
• materials usage variance (aka materials efficiency variance)
• labour  (p547)
• labour rate variance
• labour efficiency variance
• OH spending variance
• OH efficiency variance
• OH volume variance (aka capacity variance)
• all journal entries summarizing the above variances (p560)
• DR ...
CR ... Accounts Payable
• Standard costings means budgeted costings, and who is responsible for them.

### Materials variances

• can be calculated at either purchase time or issue time
• use method 1 to calculate the MPV at earliest time possible (purchase time)
• use method 2 if not enough information about purchases (e.g. price per kg not given)

#### Method 1

 purchasesactual qtyxactual price1000favorable variance(gain)DR Raw Materials ControlDR MPV (unfav)   CR MPV (fav)   CR A/P purchasesactual qtyxstandard price11000 issuesactual issuedxstandard price12000unfavorable variance(loss)DR WIPDR MUV (unfav)   CR MUV (fav)   CR Raw Materials Control issuesactual good productionxstandard cost11500
• MPV materials price variance
• MUV material usage variance
• AGP actual good production

#### Method 2

• p546
• used when there is not enough information for method 1

### Labour variances

 actual hoursxactual ratelabour rate variance -> actual hoursxstandard rate AGPxstandard cost<- labour efficiency variance
DR WIP
DR LRV (unfav)
DR LEV (unfav
CR LRV (fav)
CR LEV (fav)
CR Factory Labour Control

• LRV labour rate variance
• LEV labour efficiency variance

 actual OH30000OH spending variance ->fav flexible budgetxactual hours worked31000OH efficiency variance -> flexible budgetxstandard hours allowed29000OH volume/capacity variance -> AGPxstandard cost per unit32000

DR WIP 32000
DR OH EV 2000
CR OH SV 1000
CR OH VV 3000
CR A/P 30000
• VV volume variance
• SV spending variance
• All of the above variances have to be closed off at the end of the period to COGS, p554.
• You need to work through worked example on p558

homework: p582q15 marshal View

week 14
continued

test2: start 5:45pm, 4 questions

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Bob Newman,
Feb 8, 2010, 12:42 AM
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Bob Newman,
Feb 8, 2010, 12:43 AM
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Bob Newman,
Feb 8, 2010, 12:44 AM
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Bob Newman,
Feb 8, 2010, 12:44 AM
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Bob Newman,
Feb 15, 2010, 6:30 AM
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Bob Newman,
Feb 15, 2010, 6:30 AM
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Bob Newman,
Feb 15, 2010, 6:39 AM
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Bob Newman,
Feb 28, 2010, 8:11 PM
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Bob Newman,
Mar 11, 2010, 6:16 PM
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Bob Newman,
Mar 29, 2010, 1:47 AM
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Bob Newman,
Mar 29, 2010, 1:48 AM
ą
Bob Newman,
Mar 29, 2010, 1:49 AM
ą
Bob Newman,
Mar 29, 2010, 3:05 AM
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Bob Newman,
Mar 31, 2010, 5:47 PM
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Bob Newman,
May 3, 2010, 2:24 AM
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Bob Newman,
May 3, 2010, 2:24 AM
ą
Bob Newman,
May 17, 2010, 3:42 AM
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Bob Newman,
May 16, 2010, 4:11 AM
ą
Bob Newman,
May 16, 2010, 4:11 AM
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Bob Newman,
May 16, 2010, 4:11 AM