Xacc/280 Week 4 Managerial Accounting

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

if overapplied overhead is closed out to cost of goods sold will cost of goods sold be increased or decreased

The account issue addressed in this case study was whether to continue with the existing costing method for each product line or implement a activity-based costing method. The ABC method allows for an organization to allocate direct and indirect costs to products and obtain an accurate level of costs and profit for each unit produced, thus allowing the company to improve their overall operational effectiveness. ABC does differ from the existing costing method described in the case as the old method does not account for volume related overhead costs which must be allocated to the specific ODD and TGC products.

Shaving 5% off the estimated direct labor-hours in the predetermined overhead rate will result in an artificially high overhead rate. The artificially high predetermined overhead rate is likely to result in overapplied overhead for the year. The cumulative effect of overapplying the overhead throughout the year is all recognized in December when the balance in the Manufacturing Overhead account is closed out to Cost of Goods Sold. If the balance were closed out every month or every quarter, this effect would be

2. Lee Company manufactures chemical additives for industrial applications. As the new cost accountant for Lee, you have been assigned the task of completing the production cost report for January. Lee uses Weighted-Average Method of process costing. The following info pertains to January:

ished goods) during the period plus the equivalent units in the department’s ending work in

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

The type of overhead cost allocation system that I deem necessary for Digi-in Technology Ltd should be activity-based costing. This allocation system with work well for this company due to that fact that the method utilizes several cost pools. Examples of activity pools with this company include; material purchase, molding, machines setup, quality control, testing, etc. With its numerous activity pools, the company must therefore be careful when allocating its overhead costs, and using the plant-wide or departmental allocation may not be very accurate due to the many activities involve in the production of goods in this

The Coca-cola company is a homogeneous product manufacturer company. With 1.7 Billions units sold a day, the company is the largest soft drink manufacturer in the world and hence it becomes important to have a simple accounting system to determine how much these products should be sold at. The process costing determines the average cost for each unit so that it is easy to sell both a large amount of products or a small amount and understand how much profit is being made on the products. This type of accounting system would not be as effective if the company was creating many different items that had different costs of tasks throughout the process.

In the case, we have review the allocation of overhead by using Traditional Cost Accounting (TCA) and Activity Based Costing (ABC) in a manufacturing company named Wilkerson. Through the case study, I have learnt the importance of Cost Accounting System, the principles of TCA and ABC, the advantages and disadvantage of ABC, the practical use of ABC and cost reduction using ABC.

At present PC4U apportions its production overheads based on direct labour hours. With a range of products available and opportunity for customising these products individually to meet the retailer’s needs, this report aims to assess the effectiveness of this traditional method of allocating production overheads. It will discuss the drawbacks of the current approach used by PC4U, as well as an alternative approach in the Activity-Based Costing system, which “is intended to overcome the weakness of the traditional method by having various pools of costs and then allocating each pool’s costs on the basis of its root cause.”(Averkamp 2007) As well as comparing the benefits and drawbacks of these costing systems to determine what recommendations should be given regarding the approach PC4U should adopt, the report shall also discuss the impact an activity based management system may have on the company.

19. Holden Industries began July with a finished-goods inventory of $48,000. The finished-goods inventory at the end of July was $56,000 and the cost of goods sold during the month was $125,000. The cost of goods manufactured during July was: A. $104,000. B. $125,000. C. $117,000. D. $133,000. E. some other amount. 20. Carolina Plating Company reported a cost of goods manufactured of $520,000, with the firm's year-end balance sheet revealing work in process and finished goods of $70,000 and $134,000, respectively. If supplemental information

The mechanized type handling system, is a combination through labor and equipment handling that utilizes the help from facilities processing, receiving, and shipping. Although a high percentage of overall cost is associated with this type of labor system. Also, with having to use a high amount of human labor workers, there is more use of forklifts and carousels. Where when using an automated system, there would be a cut in labor costs due to the use of automated equipment that can accomplish the job that man power is being used to accomplish. A lot of these costs can be pretty expensive up front, but in the long run they end up paying themselves off. When a mix of both are used though, it’s called semi-automated. Which can in turn help increase efficiency. But at the same time, using completely automated systems can help reduce in any forms of error in sorting processes. Within semi-automated systems, there is the final form of information-directed handling. This system uses information technology to help direct mechanized or any automated equipment.

c) Profit analysis. Information in costs is essential to analyze the profits obtained from a product or product line. The information on the cost of a product enables managers to assess the contribution margin - the difference between