1. The original cost of the facilities at Clayton is a sunk cost and should be ignored in any decision. The decision being considered here is whether to continue operations at Clayton. The only relevant costs are the future facility costs that would be affected by this decision. If the facility were shut down, the Clayton facility has no resale value. In addition, if the Clayton facility were sold, the company would have to rent additional space at the remaining processing centers. On the other
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in which all expenses must be justified for each new period. It requires managers to justify all budgeted expenditures, not just changes in the budget from the prior year. 4. Muster Budget: A set of interconnected budgets of sales, production costs, purchases, incomes etc. is called Master Budget. It also includes pro-forma financial statements. It serves as a planning and control tool of the organization. 5. Cash Budget: Estimation of cash inflows and out flows for a business or individual
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1.0 Introduction 1.1 Purpose The purpose of this cost management plan is to define the methodology by which costs associated with the Building Expansion Project will be managed. This is necessary to ensure the successful completion of the project within the allotted budget constraints. There are several cost components associated with this project as well as many metrics, cost variance considerations, and reporting which this plan will outline. To complete this project successfully, all key project
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questions: Q1 How is activity-based costing (ABC) different from traditional costing? Q2 What are activities, and how are they identified? Q3 What process is used to assign costs in an ABC system? Q4 How are cost drivers selected for activities? Q5 What is activity-based management (ABM)? Q6 What are the benefits, costs, and limitations of ABC and ABM? These learning questions (Q1 through Q6) are cross-referenced in the textbook to individual exercises and problems. COMPLEXITY SYMBOLS The
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how accountants measure opportunity Managers in the business world seldom have the luxury of being able to assess true opportunity cost because estimating opportunity costs would require the decision maker to evaluate all possible decisions and determining relevant values for each one. For example, the decision to replace old equipment with new equipment might contain the following possibilities: rebuilding or improve existing equipment; purchase new equipment; lease new equipment; or do nothing
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manufacturing overhead consists of costs that cannot be practically traced to jobs. Therefore, if these costs are to be assigned to jobs, they must be allocated rather than traced. 3-2 Job-order costing is used in situations where many different products or services are produced each period. Process costing is used in situations where a single, homogeneous product, such as cement, bricks, or gasoline, is produced for long periods. 3-3 The job cost sheet is used to record all costs that are assigned to a particular
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Q2 Why were (a) Lourdes and (b) Greg so interested in having the company change its cost system? The both have 2 concern, better decision making and bigger bonuses. Lourdes concern that if she has better information she can make better pricing decision and do better sales planning. While Greg will have better info for making process improvement which can reduce the cost. the information they have might lead to production in larger batches and lesser shipment. if they make better decision
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sunk costs but we should include incremental overhead expenses specific to the project. It is also recommended that General Food account for erosion of Jell-O margins as this reflects incremental costs of the project. It should also account for allocation of charges for the use of excess capacity as an opportunity cost and maybe reject the project as it has a negative NPV We feel that General Foods Corporation ought to go ahead with the Super Project. While we feel the incremental costs approach
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CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1The budgeting cycle includes the following elements: a.Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected. b.Providing a frame of reference, a set of specific expectations against which actual results can be compared. c.Investigating variations from plans. If necessary, corrective action follows investigation. d.Planning again, in light of
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CLASSIC PEN COMPANY: DEVELOPING AN ABC MODEL REVISED PRODUCT COSTS FOR THE FOUR PENS, BASED ON THE ACTIVITY INFORMATION COLLECTED BY DEMPSEY Cost centres under ABC Indirect labour=$ 20,000 40% *20,000=8,000 Total indirect labour=$ 28,000 Computer expenses=$ 10,000 Machine expenses= $ 8,000+ $ 4,000+ $ 2,000=$ 14,000 Cost estimates/allocation under ABC Activity | Indirect labour | Computer expenses | Machine expenses | Total | Activity rate | Handle production runs | 50% | 14,000
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