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    Lesson 1 Cluster 2 FSUU Accounting

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    Robert Castillo
    This document provides an overview of cost concepts and cost classification systems. It defines key cost accounting terms like cost, cost pool, cost object, and cost driver. It describes different types of costs based on behavior, time of incurrence, and other factors. Methods for separating fixed and variable cost elements are explained. An example problem demonstrates calculating variable and fixed costs using the high-low and least squares regression methods. Activity-based costing is introduced as an alternative to traditional costing systems. An example compares product costs under traditional and ABC costing methods.

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    Lesson 1 Cluster 2 FSUU Accounting

    Uploaded by

    Robert Castillo
    67 views6 pages
    This document provides an overview of cost concepts and cost classification systems. It defines key cost accounting terms like cost, cost pool, cost object, and cost driver. It describes different types of costs based on behavior, time of incurrence, and other factors. Methods for separating fixed and variable cost elements are explained. An example problem demonstrates calculating variable and fixed costs using the high-low and least squares regression methods. Activity-based costing is introduced as an alternative to traditional costing systems. An example compares product costs under traditional and ABC costing methods.

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    Lesson 1 Cluster 2 FSUU Accounting

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    This document provides an overview of cost concepts and cost classification systems. It defines key cost accounting terms like cost, cost pool, cost object, and cost driver. It describes different types of costs based on behavior, time of incurrence, and other factors. Methods for separating fixed and variable cost elements are explained. An example problem demonstrates calculating variable and fixed costs using the high-low and least squares regression methods. Activity-based costing is introduced as an alternative to traditional costing systems. An example compares product costs under traditional and ABC costing methods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    67 views6 pages

    Lesson 1 Cluster 2 FSUU Accounting

    Uploaded by

    Robert Castillo
    This document provides an overview of cost concepts and cost classification systems. It defines key cost accounting terms like cost, cost pool, cost object, and cost driver. It describes different types of costs based on behavior, time of incurrence, and other factors. Methods for separating fixed and variable cost elements are explained. An example problem demonstrates calculating variable and fixed costs using the high-low and least squares regression methods. Activity-based costing is introduced as an alternative to traditional costing systems. An example compares product costs under traditional and ABC costing methods.

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    © All Rights Reserved
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    of 6

    Day 1

    COST AND COSTS CONCEPTS 
    COST ​– a measurement, in monetary terms, of the amount of resources used for some purpose.
    COST POOL – ​ an account on which a variety of similar costs are accumulated prior to allocation to cost objects. It is a
    group of costs assoc. with an activity.
    Example: overhead account.
    COST OBJECT – ​ the intermediate and final disposition of cost pools.
    Ex. Product, job, process
    COST DRIVER – ​ a factor that causes a change in the cost pool for a particular activity. It is used as a basis for cost
    allocation; any factor or activity that has a direct cause-effect relationship – kg., units
    ACTIVITY- ​any event, action, transaction, or work sequence that incurs costs when producing a product or providing a
    service.
    COST CLASSIFICATION
    TYPES OF COSTS AS TO BEHAVIOR:
    1. FIXED COST 2. VARIABLE COST 3. MIXED COST
    AS TO TIME OF INCURRENCE:
    1. HISTORICAL 2. BUDGETED 3. REPLACEMENT
    BASED ON FS PRESENTATION:
    1. EXPIRED 2. UNEXPIRED
    BASED ON ASSIGNMENT TO COST OBJECTS
    1. DIRECT 2. INDIRECT
    WITH RESPECT TO ITS IMPACT ON DECISION MAKING:
    1. RELEVANT 2. OUT-OF-POCKET 3. SUNK 4. OPPORTUNITY
    5. DIRECT 6. INDIRECT 7. QUALITY
    OPERATING COSTS:
    1. Manufacturing 2. non-manufacturing
    Exercise #1:
    The following data have been collected for four different cost items;
    cost item cost at 80 units cost at 100 units
    A P2, 400 P2,880
    B 1,800 2,250
    C 1,900 1,900
    D 3,600 3,720
    WHICH OF THE FOLLOWING CLASSIFICATIONS OF THESE COST ITEMS BY COST BEHAVIOR IS CORRECT?
    COST A COST B COST C COST D
    a. Variable fixed mixed variable
    b. Mixed variable fixed mixed
    c. Variable fixed variable variable
    d. Mixed variable fixed variable

    SEGREGATION OF FIXED AND VARIABLE ELEMENTS OF MIXED COSTS


    1. HIGH-LOW POINTS METHOD – the fixed and variable elements of the mixed costs are computed from two
    data points (periods) – the high and low periods as to activity level of cost driver.
    VC= ​CHANGE IN COST
    CHANGE IN PROD’N
    2. STATISTICAL SCATTERGRAPH METHOD
    - Various costs (dependent variable) are plotted on a vertical line (y-axis) and measurement figures (cost drivers or
    activity levels) are plotted on a horizontal line (x-axis). A straight line is drawn through the points and, using this line,
    the rate of variability and the fixed cost are computed.
    3. Method of least squares (Regression Analysis)
    -mathematically determines a line of best fit or a linear regression line through a set of plotted points so that the sum
    of the squared deviations of each actual plotted point from the point directly above or below it on the regression line
    is at minimum.
       
    Equation 1: ∑ Y = na + b ∑ x
       
         
    Equation 2: ∑ xy = a ∑ x + b ∑ x2
         
    PROBLEM #1:
    Cluster is a small one-person company that provides elaborate and imaginative wedding cakes to order for very large
    wedding receptions. The owner of the company would like to understand the cost structure of the company and has
    compiled the following records of activity and cost incurred. The owner believes that the number of weddings catered
    is the best measure of activity.
    month weddings costs incurred
    January 3 P3,800
    February 2 3,600
    march 6 4,000
    april 9 4,300
    may 16 5,300
    june 100 28,200
    july 20 5,200
    required:
    a. Using the high-low method, est. the variable cost per wedding and the total fixed cost per month. ( round off
    the VC/wed to the nearest centavo and the total fixed cost to the nearest peso.)
    b. Using the least-squares regression method, est. the variable cost per wedding and the total fixed cost
    per month. ( round off the VC/wed to the nearest centavo and the total fixed cost to the nearest peso.)
    PROBLEM #2: (solve at home)
    Wayne Company makes prestige high-end custom watches in small lots. One of the company’s products, a platinum
    diving watch, goes through an etching process. The company has observed etching costs as follows over the last six
    month:
    Week Units Total Etching Costs
    1 4 P1,800
    2 3 1,700
    3 8 2,500
    4 6 2,000
    5 7 2,400
    6 2 1,600
    Required:
    1. Using the least square method, calculate the estimate of the variable and fixe elements of etching cost.
    Y= 1,232.15 + 153.75x
    2. If the company processes 5 units next week, what would be the expected total etching cost? ​ P2,000

    ACTIVITY BASED COSTING SYSTEM 
    -Allocates overhead to multiply activity cost pools and assigns the activity cost pools to products by means of cost
    drivers.
    COST DRIVER
    ACTIVITY
    ACTIVITY COST POOL – a “bucket” in which costs are accumulated that relate to a single activity measure in the ABC
    System
    Value-adding Activities​– activities that are necessary (non-eliminable) to produce the products.
    Non-value-adding Activities​ – activities that do not make the product or service more valuable to the
    customer.
    Exercise #1
    Dionisio Manufacturing uses a normal costing system. Budgeted overhead for the coming year is P2,160,000.
    Expected actual activity is 72,000 direct labor hours. During the year, Dionisio worked a total of 70,000 direct labor
    hours and actual overhead totaled P2,300,000.
    Required:
    1. Compute the predetermined overhead rate for Dionisio Manufacturing.
    2. Compute the applied overhead.
    3. Compute the overhead variance, and label the variance as underapplied or overapplied overhead.
    Problem #1
    Believing that its traditional costing system may be providing misleading information, an organization is
    considering an ABC approach. It now employs a full cost system and has been applying its manufacturing
    overhead on the basis of machine hours.
    The organization plans on using 50,000 direct labor hour and 30,000 machine hours in the coming year. the
    following data show the manufacturing overhead that is budgeted.
    Activity Cost driver budgeted activity budgeted cost
    Materials handling no. of parts handled 6,000,000 P720,000
    Setup costs no. of setups 750 315,000
    Machining costs machine hours 30,000 540,000
    Quality control no. of batches 500 ​
    225,000
    Total manufacturing overhead cost P1,800,000
    Cost, sales and production data for one of the organization’s products for the coming year are as follows:
    Prime costs:
    Direct materials cost per unit P4.40
    Direct labor cost per unit (0.50 DLH @ P15/DLH) ​
    0.75
    TOTAL PRIME COST PER UNIT P5.15

    Sales and production data:


    Expected sales 20,000 units
    Batch size 5,000 units
    Setups 2 per batch
    Total parts per finished unit 5 parts
    Machine hours required 80 MH per batch
    Required:
    1. If the organization uses the traditional full-cost system, the cost per unit for this product for the coming
    year will be ____________. P6.11
    2. If the organization employs an ABC system, the cost per unit for the product described for the coming
    year will be _____________. P6.30

    Job order costing 
     
     

    PROBLEM 1
    Strong products has no work in process or finished goods inventories at the close of business on December
    31, 2015, were as follows:

    Cost of goods sold – unadjusted P 6,120,000


    Selling and administrative expense 2,700,000
    Sales 10,800,000
    Manufacturing overhead control 2,100,000
    Manufacturing overhead applied 1,944,000
    Required:
    1. Pretax income for 2015
    PROBLEM #2
    XYZ company has the following balances as of the year ended December 31, 2015
    Debit
    Direct materials inventory P 135,000
    WIP Inventory 310,500
    FG inventory 445,500
    Cost of Goods sold 670,500

    Credit
    Factory department overhead P 36,000
    Additional information were as follows:
    Cost of Direct materials purchased during 2015 P369,000
    Cost of DM requisitioned in 2015 423,000
    Cost of goods completed during 2015 918,000
    Cost of Direct labor 360,000
    Factory overhead is applied at 120% of direct labor
    Required:
    1. Beg. DM Inventory
    2. Beg. FG inventory
    3. Actual factory overhead incurred

    PROBLEM #3
    W company has applied overhead of P60,000 for the year. Before disposition of over applied overhead, selected year
    end balances from W’s accounting records were…
    Sales P1,000,000
    CGS 750,000
    DM Inventory 50,000
    WIP inventory 180,000
    FG Inventory 270,000
    Under W’s accounting system, over or under applied overhead is allocated to appropriate inventories and cost of
    goods sold based on year end balances.
    In its year end income statement, W should report cost of goods sold of ​
    P712,500
    PRODUCT COSTING 

    EXERCISE #1
    Cluster 2 Company manufactures a professional grade vacuum cleaner. For 2014, the company had no price,
    spending, or efficiency variances, and writes off production-volume variance to cost of goods sold. Actual data for
    2014 are given as follows:
    Units produced 20,000
    Units sold 19,000
    Selling price P300
    Variable costs:
    Materials P40
    Manufacturing labor 30
    Manufacturing overhead 55
    Marketing 40
    Fixed costs:
    Manufacturing P900,000
    Selling and administrative 750,000
    Required:
    1. The inventoriable unit cost for internal reporting purposes under variable costing.
    2. The inventoriable unit cost for external reporting purposes under absorption costing.
    3. Operating income for 2014 under variable costing
    4. Operating income for 2014 under absorption costing
    5. Accounting for the difference in income under the two costing methods.

    PROBLEM #1 (SOLVE AT HOME)

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