Sm Ch 24

Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:

To estimate product costs, an analysis of the primary cost drivers for each step of the manufacturing process was performed. Table 1 details each activity, along with the corresponding base, total quantity, total cost, and activity rate:

• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.

Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

Super Bakery is a distinguished company created in 1990. The company has is a supplier of mineral, vitamin, and protein enriched doughnuts. The strategy applied by the company is job order cost method. Job costing is a product costing system when costs are accumulated by specific job orders and assigned to batches of products. In other words, manufacturing costs are assigned to specific job, specific customers, specific orders, specific projects, and specific contracts. Job costing is preferable to small and medium-sized companies, such as professional services (e.g. medical, legal), advertising

In production, there are different types involved before a product brings revenue to the company. The costs involved incurred by Spyglass Inc. for the Batch 27A’s order of 500,000 units are:

Management needs to determine which costs can be controlled and which costs cannot be controlled. The variance analysis simply showed that there was an unfavorable variance for manufacturing (99,000 U). Manufacturing Cost of Goods Sold must be evaluated individually because of the underlying facets from just a number. This unfavorable number could be caused by either an increase in price or a waste in using the number of unit materials. The materials variance should be broken down into the price variance and the usage variance. Exhibit 1 shows that variable cost and fixed cost were separated and variance was computed. Variable cost was the main culprit of the increase in cost. Here, we can identify that the increase may

In examining the variance for the product costs, the results are unfavorable. The total for direct materials are were more than 7,750 more than originally estimated. We originally factored in a cost of $232,500 for the cost of of the products. Instead we spent $240,250. It is important for us to have the number accurate. This could be due to a cost increase in raw materials, additional transportation costs, not purchasing in bulk, and not paying invoices within the interest free period. The direct material price variance is neither favorable or unfavorable because the cost of the product is the same. The direct quantiy variance is also unfavorableThe direct material quantity has a variance which could be caused by items being

CI uses standard unit costs to measure performance and profit potential. In this cost system, each materials and labor input is given a standard usage, and production managers are evaluated on their ability to meet or improve upon these standards. Differences from the standard were called “variances.” For example, if a certain manufacturing operation required at standard 5 minutes, the operator would be expected to complete a lot of 100 parts in 500 minutes. If actually 550 minutes were required, there would be a 50 minute unfavorable variance. Also, using the operator’s wage rate, the cost of the variance could be calculated.

The planned volume was 150,000 units and the actual units produced was 160,000. Since the units produced was higher than what was expected, the volume decreased the fixed cost per unit and the volume variance is

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.

Traditional standard costing (TSC), used in cost accounting, dates back to the 1920s and is a central method in management accounting practiced today because it is used for financial statement reporting for the valuation of income statement and balance sheet line items such as cost of goods sold (COGS) and inventory valuation. Traditional standard costing must comply with generally accepted accounting principles (GAAP US) and actually aligns itself more with answering financial accounting requirements rather than providing solutions for management accountants. Traditional approaches limit themselves by defining cost behavior only in terms of production or sales

Manufacturing costing methods are accounting techniques that are used to help understand the value of inputs and outputs in the production process. By tracking and categorizing the information according to a rigorous accounting system, corporate management can determine with a high degree of accuracy, the cost per unit production and other key performance indicators. Management needs this information in order to make informed decisions about the production levels, pricing, competitive strategy ,future investments and a host of other concerns .

Standard cost is defined as, an estimated or predetermined cost of performing an operation so as to produce goods and services, under normal conditions. It is used as the target cost, which helps to compare to actual costs that are unpredictable. Usually, these costs are developed from previous performances of the company through a historical data analysis or the current trends that the company is registering. Standard cost estimates are the starting point for determining the company’s budget. Standard costs are associated with a company 's costs of direct materials, direct labor, and overhead. Instead of assigning the actual costs to a product, companies tend to assign an expected or standard cost to the product. Therefore when goods are sold, the amount will reflect the standard cost not the actual product cost. It also serves as a measure of efficiency of the production process, since, when compared to the actual cost, identifies the points where inefficiencies or misappropriation of resources may occur. The standard cost is pre-assigned, taken as the basis for recording the production before the determination of cost effective. In his managerial design, standard cost indicates the optimal cost, i.e., one that should be achieved by the industry in terms of full efficiency and maximum performance.

Hence we can Estimated Indirect (overhead) cost per unit is quite different for each product, unlike the traditional costing where indirect costs per unit were the same for all four products. This approach recognizes that product W uses more activity pool resources than product X , product Y and product Z .