...your rationale." Business - Accounting Alternative Costing Methods The text presents job and processing costing systems as virtual “polar extremes,” there are many situations where it may be best for a company to use a hybrid system that combines attributes of both systems. Describe such a situation and discuss how the hybrid system may be better than either pure job or pure process systems. Think Twice Assume you own a business that makes two complementary products for which you allocated manufacturing overhead proportionally. A competitor is trying to undercut your price for one of the products. How might ABC costing help you better compete with this pending threat? Activity Base Costing- How do managers cost products or services using ABC systems? When should managers consider using an ABC costing system? How should they decide to adopt this method? Alternative Costing Methods I would like you all to select a costing method: process, job, or activity based. Describe the nature of your chosen method. What types of organizations should choose that method? How is this method different from the costing methods you did not choose? I have implemented a job costing system in my company. If you were my corporate controller, how would you implement a job-costing system? Why is process costing a better costing method for certain industries? What would happen if they used a job costing system? Can we explain three major source...
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............................................................................................................ 2 Key Decision Criteria .................................................................................................................... 3 Alternatives Analysis ..................................................................................................................... 3 Recommendations ........................................................................................................................ 4 Action and Implementation Plan ................................................................................................... 5 Outcome Measure Specification ................................................................................................... 7 Textbook Questions ...................................................................................................................... 7 Appendix ....................................................................................................................................... 9 Exhibit 1. Net income in traditional and ABC systems. .................................................................. 12 Exhibit 2. Cost per unit based on ABC method ............................................................................... 13 Exhibit 3. Recommended Selling Prices with 35% Gross Margin ................................................ 14 Bibliography .........................................
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...the best foods to people throughout their day. Throughout their lives, throughout the world. With our unique experience of anticipating consumers’ needs and creating solutions. Nestle contributes to your well-being and enhances your quality of life.” COST ACCOUBTING INFORMATION SYSTEM OF NESTLE INPUT MEASUREMENT BASIS STANDARD COSTING Nestle is using STANDARD COSTING as a base for input measurement Standard costs are usually associated with a company’s costs of direct material, direct labor, and manufacturing overhead. Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, nestle’ like many manufacturers assigns the expected or standard cost. This means that its inventories and cost of goods sold will began with amounts reflecting the standard costs, nor the actual costs, of a product Nestle’, of course still has to pay the actual costs. As a result there almost always differences between the actual costs and the standard costs, and those differences are known as variances, REASON FOR USING STANDARD COSTING Nestle is currently using Standard costing method because the related variances are valuable management tool. If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned. expected) costs. • If actual costs are greater than...
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...ASSIGNMENT ON COSTING Submitted By, MOHAMMED NAFAISE QUESTIONS 1. Define the term cost. Explain various types with relevant examples? 2. Methods and techniques of with relevant industrial examples? COST The cost is defined as the amount which is paid or given up to get something or to achieve the objective of the business. In business the objective may be to make a product, to provide a particular service and so on. Cost is usually a monetary valuation of effort, material, resources, time and utilities consumed risks incurred, and opportunity forgone in production and delivery of a good or service. The costs incurred by a business may be classified in various ways and one important way is according to how they behave in relation to changes in the volume of activity. There are: Based on behavior two types of cost are there 1.FIXED COST: those are fixed when changes occur to the volume of activity. Ex: the salary of employees, rent… 2.VARIABLE COST: these are cost which vary according the volume of activity. Ex: cost of raw materials used in manufacturing a product. DIFFERENT TYPES OF COST WITH EXAPLES * SEMI-FIXED(SEMI-VARIABLE )COST: In some cases, particular costs have an element of both fixed and variable cost. Thesecan be described as semi-fixed (semi-variable) costs. * Ex: telephone bill, electricity bill. * Actual Cost Actual cost is defined as the cost or expenditure which...
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...Problems HO #4 (1) Variable Costing Income Statements: 2011 2012 Sales 1,000 units Sales 1,200 units Production 1,400 units Production 1,000 units Revenues ($3 per unit) $3,000 $3,600 Variable Costs: Beginning Inventory $ 0 $ 200 Variable cost of goods manufactured 700 500 Cost of goods available for sale 700 700 Deduct ending inventorya (200) (100) Variable cost of goods sold 500 600 Variable operating costs 1,000 1,200 Variable costs 1,500 1,800 Contribution Margin 1,500 1,800 Fixed Costs: Fixed manufacturing costs 700 700 Fixed operating costs 400 400 Total fixed costs 1,100 1,100 Operating income $ 400 $ 700 a Unit inventoriable costs: Year 1: $700 / 1,400 = $0.50 per unit; $0.50 x (1,400 – 1,000) Year 2: $500 / 1,000 = $0.50 per unit; $0.50 x (400 + 1,000 – 1,200) (2) Absorption-costing income statements: 2011 2012 Sales 1,000 units Sales 1,200 units Production 1,400 units Production 1,000 units Revenues...
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...initial calculations by the committee of the total unit cost of $18.90 (per book) is incorrect. Second, determination of the total unit cost of $23.90 (per book) supposing the request of $5,000 is granted is incorrect. Third, the consideration of eliminating the department altogether is based on the assumption the University can save a total of $23,900, which is also incorrect. The mistakes that have been made are mostly due to the mistreatment of the costs and incorrect methods that were used in making these calculations. The accuracy of these number is critical to making a decision that is in the best interest of the University. The treatment of these costs and the methods used to arrive at them must be reexamined so that a proper valuation can be made of the book donations department. 2- Underlying Problems The first flaw inherent in the committee’s analysis is the use of the absorption costing method to calculate the total unit cost of $18.90 (per book) based on 1,000 books. The absorption method is mostly used for external reporting and has flaws in the treatment of costs for internal purposes. It is advised that one uses caution against expressing fixed costs on an average per unit basis in...
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...Financial Statements 1. List the components that comprise a typical financial statement. Income statement, statement of owner equity, balance sheet, statement of cash flow 2. Describe how changes to a company’s revenue and expenses affect their Income Statement and Balance Sheet. Income statement presents the summary of revenues and expenses for a period of time. Changes in these two entity’s will affect the report of the company net income and net loss. 3. How do changes in the Income Statement and Balance Sheet data affect a Statement of Cash Flows? The statement of cash flows reports the cash coming in and out during a period which is supported by the balance sheet data and the income statement date of specific date. The order of financial statements are income statement, statement of owner’s equity, balance sheet, and statement of cash flows. 4. Explain how you can evaluate the financial condition of a firm by reviewing the Balance Sheet. The balance sheet is a snapshot of the business at a specific date that showcase the company assets, liabilities and owner’s equity. 5. How can you determine the contribution margin from an Income Statement? Perform a breakeven analysis. This give information for the decision making purposes. 6. How is a horizontal and vertical analysis calculated? Horizontal Analysis – 1. Compute the dollar amount of change in sales from Year 1 to Year 2. 2. Divide the dollar amount of change b the base-period amount. This computes...
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...Marginal Costing Dr. Shubhra Product Costing There are mainly two techniques of product costing and income determinationAbsorption Costing: This is a total cost technique under which total cost (i.e., fixed cost as well as variable cost) is charged as production cost. In other words, in absorption costing, all manufacturing costs are absorbed in the cost of the products produced. Marginal Costing: An alternative to absorption costing is marginal costing, also known as ‘variable costing’ or direct costing. Under this technique, only variable costs are charged as product costs and included in inventory valuation. Fixed manufacturing costs are not allotted to products but are considered as period costs and thus charged directly to Profit and Loss Account of that year. Fixed costs also do not enter in stock valuation. Marginal Costing: Definition CIMA London as ‘The accounting system in which variable costs are charged to cost units and fixed costs of the period are written off in full, against the aggregate contribution. Its special value is in decision making’. Segregation of costs into fixed and variable elements • In marginal costing all costs are classified into fixed and variable. Semi-variable costs are also segregated into fixed and variable elements. Marginal costs as products costs • Only marginal (variable) costs are charged to products produced during the period. Fixed costs as period costs • Fixed costs are treated as period...
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...Activity Based Costing Presentation by: Viraj Vaidya (12F353) & Nikhil Vanage (12F360) SCM Introduction Activity-based costing (ABC) is a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs compared to conventional costing. CIMA (Chartered Institute of Management Accountants) defines ABC as an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs. Aims of model With ABC, a company can soundly estimate the cost elements of entire products ACTIVITIES and services. That may help inform a company's decision to either: * Identify and eliminate those products and services that are unprofitable and lower the prices of those that are overpriced (product and service portfolio aim) * Or identify and eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield (process re-engineering aim). In a business organization, the ABC methodology assigns an organization's resource costs through activities to the products and services...
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...specifically with cost and production. Cost accounting assists companies to understand the cost of product versus service and this helps to prepare bids and proposals and assembles information for planning and control which are needed to evaluate performance. Any business can use cost accounting but it is most effective with corporations that manufacture mass produced products and have a large employee base. Cost accounting is also becoming a valuable asset within the medical industry. In the ultra-competitive market of health care, hospitals are using price strategies, one of the new methods used in accounting, to entice customers and keep patients happy. Cost accounting techniques have developed as quickly as industry has in the 21st century. Basic accounting has become antiquated as new, creative approaches to financial stability emerge. Methods such as ABC (Activity Based Costing) and ABM (Activity Based Management) where price is matched to the resource and the activity that uses them, have become the modern tool for both structural and execution cost management (Fotache & Fotache, 2009). The GPK (Grenzplankostenrechnung) is an approach used mostly in European countries and deals with the cost of unused capacity. ERP or Enterprise...
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...unit method involves a familiar physical unit for measuring the output of each product. For instance, board feet are a common unit for a variety of products in the lumber industry. Nevertheless, occasionally such a common denominator is missing. As an alternative, several companies use the relative sales value method for allocating joint costs. The relative sales value method can also be used when one or more of the joint products cannot be sold at the split-off point (Horngren, C, Sundem, G ,Stratton, W, and Burgstahler, D. 2008). Q12-20 What are by-products and how do we account for them? A product that, like a joint product, is not individually identifiable until manufacturing reaches a split-off point, but has relatively insignificant total sales value (Horngren, C, Sundem, G ,Stratton, W, and Burgstahler, D. 2008). If we report an item as a by-product, we allocate only the separable costs to it. We allocate all joint costs to the main products. Also, a deduction of all revenues from by-products, less their separable costs, from the cost of the main products. Q13-16 “An increasing number of companies are using variable costing in their corporate annual reports.” Do you agree? Explain. We do not agree that companies should use variable costing in their corporate annual reports. Variable costing should only be used for internal reporting and short-term management decisions. Neither the public accounting profession nor the IRS approves of variable costing for...
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...Solutions Manual COST ACCOUNTING Fifteenth Edition Charles T. Horngren Srikant M. Datar Madhav V. Rajan ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Acquisitions Editor: Ellen Geary ------------------------------------------------- Editorial Project Manager: Nicole Sam ------------------------------------------------- Editorial Assistant: Christine Donovan ------------------------------------------------- Project Manager: Roberta Sherman ------------------------------------------------- Supplements Project Manager: Andra Skaalrud ------------------------------------------------- Copyright © 2015 Pearson Education, Inc. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying...
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...The Best Choice of Costing Plan Trident University Businesses must choose the most appropriate costing plan for their particular business by taking into account various aspects that are potentially impacted. For the cast of the Farm Financial Standards Council, certain allocations are considered in each department of the farming process in order to better manage financial aspects of the farm. Although some of these allocations may prove logical and assist in determining costing, some of the decisions may not be as beneficial in this case. This research will address those benefits as well as the potential drawbacks of such mentioned allocations, and if traditional cost accounting or activity based costing (ABC) would prove more relevant. ABC is being used in today’s businesses more often as it is an important aspect of manufacturing organizations, based on a “methodology that measures the cost and performance of activities, resources and cost objects” (Akyol, Tuncel, and Bayhan, 2005). So many factors go into the calculations of activity based costing, making it a more detailed form of financial management. The ABC system retrieves a total cost of a product, which is equal to the cost of materials, and also all of the activities combined to produce that product. Simply meaning, the ABC method is based around the organization utilizing all resources and linking the cost of those activities to the “outputs, such as products, customers, and services”...
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...Plantwide method has been used for long time and is still used successfully by many organizations. However, in some cases is not working well and is causing product cost distortion. Analysis of overhead cost assignment using alternative method show that the unit cost of the standard and specialty briefcases needs to be conducted using activity-bases costing instead plantwide method. Analysis of overhead cost using activity-based costing is presenting actual consumption of overhead costs by the standard briefcases and specialty briefcases. Instead pooling costs in plant pool; rates are calculated for each individual overhead activity. Consequently, costs are assigned to standard briefcases and specialty briefcases by multiplying the activity rates by amount consumed by each activity for each product. Breakdown of the manufacturing cost for each of WorkRite’ product is given below using activity-based costing and plantwide rates: Activity-Based Costing Standard Briefcases Specialty Briefcases Setup rate $ 100.00 Inspection rate $ 30.00 Frame Assembly rate $ 8.00 Machine rate $ 4.00 Prime cost per unit $ 10.00 $ 20.00 Overhead costs: Purchasing $ 6,000 $ 9,000 Material handling $ 6,200 $ 9,800 Setup $ 1,000 $ 5,000 Inspection $ 6,000 $ 12,000 Frame Assembly $ 5,600 $ 6,400 Machine $ ...
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...LIFO to be accepted as costing method? I. Introduction In the United States, the SEC is expected to eventually mandate the adoption of International Financial Reporting Standards (IFRS). U.S. standards setters have been working toward this eventuality through a process of convergence. The SEC issued a statement in early 2010 that updated its timeline and indicated that companies could be required to adopt IFRS as early as 2015 (see SEC, "Commission Statement in Support of Convergence and Global Accounting Standards," Release Nos. 33-9109; 34-61578, February 24, 2010, at www.sec.gov/nles/other/2010/33-9109.pdf). The SEC plans to revisit the issue this year. The general consensus suggests, however, that under IFRS, the last-in, first-out (LIFO) inventory valuation method will no longer be permitted for financial or tax reporting. The adoption of IFRS is a contentious issue for companies currently using LIFO as an inventory valuation method. In order to claim the tax benefits of LIFO, companies must also present financial statements using the same method, as required by the conformity rule (IRC section 472 [c]). LIFO is not permitted under IFRS, which means U.S. companies must switch from LIFO to first-in, first-out (FIFO) or average cost upon adoption of IFRS. Although only a small subset of U.S. companies currently uses LIFO for at least some of their operations, a change in inventory valuation method can have a significant impact on reported income, inventory balances, tax...
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