CHAP 4 Flashcards
product costing
determining cost of a product
product costing allocating methods
single plantwide FOH rate method
multiple productions dept FOH rate method
activity based costing method
single plantwide method
costs are allocated to products using only one rate total
budgeted FOH/total budgeted plantwide allocation base
advantages for single plantwide method
simple and inexpensive
challenges for single plantwide method
assumes consumption of FOH cost is the same aross products, or might not apply to companies that manufacture many products not super accurate
Multiple production dept FOH rate method
uses diff rates for each dept to allocate FOH costs to products
budgeted dept FOH/budgeted dept allocation base
if one of 2 are met, DO NOT use the plantwide method
diff in production dept factory OH rates
diff among products in the ratios of allocation base usage within across dept
ABC method
provides an alternative approach for allocating FOH that uses multiple FOH rates based on diff activities
costs are initially budgeted for activities
budgeted activity costs/total activity base usage used for each activity
what is an activity?
are types or actions involved in a manufacturing or service process machine usage, inspections, moving, production setup, and engineering activities
allocating costs formula
activity OH allocated = activity base usage (activity rate)
FOH cost per unit formula
total FOH cost/total units of estimated production
dangers of product cost distortion
underpriced products overpriced products
underpriced products
increase in sales
expand production
overpriced products
a decrease in sales
cease production
selling and admin expenses are reported as what?
period expenses on the income statement may be allocated to products for managerial decision making
