Chapter 3—Predetermined Overhead Rates, Flexible Budgets, and Absorption/Variable Costing LEARNING OBJECTIVES |LO 1 |Why and how are overhead costs allocated to products and services? | |LO 2 |What causes underapplied or overapplied overhead, and how is it treated at the end of a period? | |LO 3 |What impact do different capacity measures have on setting predetermined overhead rates?
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Ontario, Inc. manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period is $800,000 and 25,000 hours, respectively. Information about the company's products follows. Standard: Enhanced: Estimated production volume 3,000 units 4,000 units Direct-material cost $25 per unit $40 per unit Direct labor per unit 3 hours at $12
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Liabilities Short term Investments Current Receivables Current Liabilities Net sales Average accounts receivable Cost of goods sold Average inventory 365 365 Net Sales Average total assets Total liabilities Total assets Total equity Total assets Total liabilities Total equity Income before interest expense and income taxes Interest Expense Net Income Net Sales Cost of goods sold Net Sales Net Income Average total assets Net income Preferred dividents Average common stockholders
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revenues and expenses would be called: A) a cost center. B) an investment center. C) a profit center. D) residual income. 2. Lanta Restaurant compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, would the restaurant usually report favorable variances on variable food costs and fixed supervisory salaries? | |Food Costs |Supervisory Salaries
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creditors, customers, suppliers,| | |government agencies, and labor unions. External accounting | | |Identify cost classifications—Direct Materials, Direct Labor, Manufacturing Overhead, Nonmanufacturing costs. | | |Direct materials – materials that are part of the final product and can be directly traced to the goods being | | |produced. (tires on cars, wood in dining
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Approach This case contrasts a standard cost system with an actual job cost system, and thereby brings out several points about cost accounting, including: the purposes for which cost accounting data are used; the paperwork involved in cost accounting; the use of costs for pricing; the problem of controlling costs under the two types of systems; and the problem of the normal overhead rate. Students may have difficulty in seeing that: (1) in the Conley standard cost system, costs are not traceable to individual
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A COMPARATIVE STUDY OF STANDARD COSTING SYSTEMS OF TWO COMPANIES CERTIFICATE FROM THE ORGANISATION TABLE OF CONTENTS Sr. No. | Chapter Name | Page No. | 1. | Acknowledgement | 5 | 2. | Preface | 6 | 3. | Objective and Introduction | 7 | 4. | A Brief about the two Companies | 8 | 5. | Standard Costing System | 12 | 6. | Findings | 15 | 7. | Conclusion | 17 | ACKNOWLEDGEMENT We owe much gratitude to all the people who have helped and supported us during the conduct
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the recovery of overhead within a full cost pricing policy. The discussion centred around the traditional method currently in use, compared and contrasted with ABC, Activity Based Costing a technique which re-examines the problem that has faced accountants for decades – that of allocation and absorption of overhead. Traditional pricing method has been based upon absorption costing and the treatment of overhead usually followed a set procedure. ( Cost centres are identified and established
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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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14/05/2014 Mixed Costs Total Mixed Cost VC Per Unit (Slope) Purpose of Mixed Cost Analysis To predict cost at an activity level with no historical record: Total mixed cost line can be expressed as: 2N Y Total Utility Cost Fixed Cost (Intercept) Level of Activity If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, can you predict the utility of next month when you plan to use 2,000 kilowatt hours? Y = a + bX Variable Cost per KW Fixed
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