Basic Cost Accumulation and Assignment

Basic Cost Accumulation and Assignment

1. Cost Pool

   • group of individual cost items

2. Cost Allocation Base

   • a factor that is a common with linking indirect cost to cost object

3. Job Costing System

   • cost assigned to distinct unit, batch, product
   • Identify cost object, find direct, indirect, cost allocation base, find per unit, assign costs
     • Add direct and indirect cost to get job cost
   • key source documents
     • job cost record
     • materials requisition record
     • labour time record

4. Process Costing System

   • cost object is masses of identical units
   • uses broad averages
   • conversion cost
     • manufacturing costs other than direct material
   • Find physical units, eq units, compute eq unit cost, find total cost to account for, assign cost to completed and closing WIP
   • Weighted Average Process Costing
     • calculated eq unit cot of work done to date
   • FIFO vs WA
     • FIFO separates work done between diff periods
   • Transferred in Cost
     • cost incurred in previous dept that are carried forward to next cycle
     • other than transferred in costs, remember to include TiC from previous dept
     • unit cost may fluctuate so in FIFO, they are ONE average cost

5. Costing Methods

   • Actual: Direct - Actual Indirect - Actual
   • Normal: Direct - Actual Indirect - Budgeted

6. POHR

   • rate used to apply manufacturing overhead (MOH) to work in progress inventory
     • POHR = Estimated MOH cost / Estimated Amount of Cost Driver

7. Account for Over/Under Allocation of Cost

   • Close to COGS
     • Debit COGS
     • Credit MOH Control for total allocated
     • Debit MOH Allocated to undo previous lousy allocation
   • Proration based on total amount of indirect cost allocated in closing balance
     • most accurate
   • Proration based on total closing balance
     • cheap

8. Hybrid Costing System

   • both job and process costing
   • operations costing
     • applied to batches of similar products
     • varies by a single design

9. Indirect Cost Allocation

   • Support Departments
     • maintains other dept
   • Single Rate Cost Allocation Method
     • all costs into ONE pool
   • Dual Rate Cost Allocation Method
     • classifies cost into one cost pool
       • fixed sub-cost pool
       • Variable sub-cost pool
   • Operating Departments
     • adds value to product/service

10. Allocating Cost of Support Departments

    • Direct Method
      • Cost of support is shared by the operating
    • Step Down Method
      • Cost of support is passed down from one to the other and then to the operating
    • Reciprocal Method
      • Equation method