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MA: COSTING A PRODUCT G4T1: Claire Deline Grace Feliza Kimberly (Week 4:…

- - - - NO: Non-Manufacturing/Period Costs
        
        Immediately expensed off
      - YES: Manufacturing/Product Costs
        
        First recorded as asset, then expensed off as COGS when product is sold
        
        DM + DL + Manu OH or Prime Costs + Allocated Manu or Conversion Costs + Direct Material
    - - Cost can be easily & conveniently traced: Direct Costs
        
        Direct Manufacturing Costs
        
        Prime Costs
        
        Direct Manufacturing Cost
        
        Direct Labour Costs
        
        Direct Non-manufacturing costs
      - Cost cannot be easily & conveniently traced: Indirect Costs
        
        Manufacturing Overheads
    - - Fixed Costs
      - Variable Costs
        
        +
        
        Total Cost
    - - Relevant costs: costs that will be changed as a result of the decision
      - Irrelevant costs: costs that will not be changed regardless of the decision
  - - - Beginning Bal + Additions to Inventory = Ending Bal + Withdrawals from Inventory
    - - Beginning DM + DM Purchase = Ending DM + DM Used
    - - Beginning WIP + Manu Costs Incurred during Period = Ending WIP + DM Used
    - - Beginning FG + COGM = Ending FG + COGS
- - - - Cost Distortion
  - - - Firstly - costs are assigned to activity pools
      - Secondly - costs in the activity pools are applied to products based on amount of activities they required
  - - - Product are manufactured to order
      - The unique nature of each order requires tracing or allocating cost to each job and maintaining COH record for each
    - - Step 1: At the beginning of the period, determine the POR or activity rate
      - Step2: During the year.... as the job is carried out, record costs in the WIP account for each job
        
        Trace DM & DL to the WIP of the job
        
        Apply the OH to the WIP of the job using POR
      - Assigns overhead costs to one or more cost pools
      - Step 3: At the end of the year, determine the under/over applied overhead of the company and adjust using direct method
      - Actual Absorption Costing OHR = Total Actual OH/ Actual Qty of Cost Driver
    - - ABC does not allocate some manufacturing overheads to products
      - ABC provides better information for Direct Material
      - ABC minimises cost distortions
- - - - Variable COGS = Variable Cost Per Unit X Units Sold
  - - - Benefit: Can be manipulated to reflect higher profit by producing more
        
        By producing more, the COGS will be lowered as the Fixed Cost will be shared among more units
      - Used for external reporting (Satisfies matching principals)
        
        Companies should never use Financial Reporting methods to make internal decisions
      - 1. Predetermined Overhead Rate = Total Estimated Overhead/Total Estimated Qty of Driver
        
        Determine Over/Under Applied Overhead
        Applied Fixed OH - Actual Fixed OH = (FOHR x Product Qty) - Actual FOH
        
        4. Adjust COGS
        COGS +/- Underapplied/Overapplied OH
        
        2. Absorption cost per unit = DM + DL + Applied Var OH + Applied Fixed OH
      - Product cost:
        Fixed MOH, DM, DL, Variable MOH
      - Actual Costing
        
        1. Overhead Rate = Total Actual Overhead/Total Actual Qnty of Cost Driver
        
        2. Manufacturing Cost = Actual DM + Actual DL + Actual MOH
  - - - If Production > Sales, AC > VC
      - If Sales > Production, VC > AC
      - FORMULA Change in Inventory X FOHR/OHR
      - Production = Sales, AC = VC