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Student Version

Student Version. Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information.

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Student Version

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  1. Student Version • Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. • These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. • In addition, most text book exhibits have been removed as they are available in your text directly.

  2. Cost Allocation and Activity-Based Costing Chapter 11

  3. Learning Objective 1 Identify three methods used for allocating factory overhead costs to products.

  4. 0 ________ ________ Allocation Methods • Most companies have accounting systems that trace revenues to individual product lines. In addition, they need to subtract the cost of manufacturing their products from revenues in order to determine the profit from sales. Determining the cost of a product is termed ________ ________ .

  5. Product Costing Allocation Methods

  6. Product Costing Allocation Methods • Three methods of allocating factory overhead costs are: • ________ ________ factory overhead rate method • ________ ________ ________ factory overhead rate method • ________ - ________ ________ method

  7. 0 Learning Objective 2 Use a single plantwide factory overhead rate for product costing.

  8. 0 ________ ________ Factory Overhead Rate Method • Under the ________ ________ factory overhead rate method, ________ of the factory overhead is allocated to ________ products using ________ ________ ________ .

  9. 0 Ruiz Company Illustration Ruiz Company • Ruiz Company manufactures two products, snowmobiles and riding mowers. Both products are manufactured in a single factory. There is $1,600,000 of factory overhead budgeted for the period.

  10. 0 Ruiz Company Illustration Ruiz Company • Each product is budgeted 10,000 direct labor hours as shown below:

  11. Total Budgeted Factory Overhead Costs Total Budgeted Plantwide Allocation Base $___ per direct labor hour = $__________ _____ direct labor hours (1,000 × 10 dlh) + (1,000 × 10 dlh) 0 Ruiz Company Illustration Ruiz Company • The single plantwide rate is calculated as follows:

  12. 0 Ruiz Company Illustration Ruiz Company • Snowmobile: • $80 per dlh × 10 direct labor hours = $800 • Riding Mower: • $80 per dlh × 10 direct labor hours = $800 ________ ________ Cost per Unit

  13. 0 Ruiz Company Illustration

  14. 0 Single Plantwide Factory Overhead Rate Method • The primary ________ of the single plantwide overhead rate method is that it is ________ and ________ to ________ in practice.

  15. 0 Learning Objective 3 Use multiple production department factory overhead rates for product costing.

  16. 0 ________ ________ ________ Factory Overhead Rate Method • The ________ ________ ________ factory overhead rate method uses ________ ________ for ________ ________ ________ to allocate factory overhead costs to products.

  17. ________ ________ ________ Factory Overhead Rate Method

  18. $__________ = $ ________ per dlh $__________ = $ ________ per dlh 0 Department Overhead Rates and Allocation Ruiz Company • ________ Department Factory Overhead Rate: _______ direct labor hours • ________ Department Factory Overhead Rate: _______ direct labor hours

  19. 0 Distortion of Product Costs • The following conditions indicate that a ________ ________ factory overhead rate may cause product cost distortions: • Condition 1: Differences in ________ department factory overhead ________ . • Condition 2: Differences among ________ in the ________ of ________ ________ ________ within a department and across departments.

  20. 0 Learning Objective 4 Use activity-based costing for product costing.

  21. 0 ________ - ________ ________ Method • The ________ - ________ costing method provides an alternative approach for allocating factory overhead that uses ________ ________ overhead rates based on ________ ________ . • ________ are the types of ________ , or ________, involved in a manufacturing or service process.

  22. 0 Activity-Based Costing Method

  23. Activity Rate = 0 Activity Rates and Allocation • The budgeted activity costs are assigned to products using factory overhead rates for ________ activity. These rates are called ________ ________ because they are related to ________ .

  24. 0 Activity Rates and Allocation • The term ________ ________ , rather than allocation base, is used because the ________ is related to an ________ .

  25. Distortion of Product Costs Ruiz Company • If Ruiz Company used the $800 factory overhead cost allocation (single plantwide rate) instead of activity-based costing, the following would likely result: • The snowmobile would be ________ because its factory overhead cost is ________ by $ _____($_____ – $_____). • The riding mower would be ________ because its factory overhead cost is ________ by $_____ ($_____– $_____).

  26. 0 Learning Objective 5 Use activity-based costing to allocate selling and administrative expenses to products.

  27. 0 Activity-Based Costing for Selling and Administrative Expenses Abacus Company • Abacus Company has two products, Ipso and Facto. Both products have the same total sales volume. The selling and administrative expenses of Abacus Company are allocated to its two products on the basis of sales volume. However, Ipso and Facto consume selling and administrative activities differently.

  28. 0 Activity-Based Costing for Selling and Administrative Expenses

  29. Activity-Based Costing for Selling and Administrative Expenses • Assuming that Ipso had 10 warranty claims and Facto had 90 warranty claims, the field service activity expenses would be allocated as follows: • Ipso: $ ________ = ________ warranty claims x $ ________ per warranty claim • Facto: $ ________ = ________ warranty claims x $ ________ warranty claim

  30. 0 Learning Objective 6 Use activity-based costing in a service business.

  31. 0 Activity-Based Costing in Service Businesses Hopewell Hospital • Hopewell Hospital uses an activity-based costing system to determine how hospital overhead is allocated to patients. Each activity has an estimated patient activity-base usage.

  32. Activity Rate = Radiological Testing Activity Rate = Activity-Based Costing in Service Businesses • The budgeted costs for radiological testing are $960,000, based on total estimated activity-base usage of 3,000 images. = $ ____ per image

  33. Cost Allocation and Activity-Based Costing The End

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