Ringkasan AB PDF

Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)
AKUNTANSI BIAYA
CHAPTER 1 Management Accounting and Value
Value Chain is the sequence of business functions in which
The Accountant’s Role in the Organization customer usefulness is added to products or services .The
Value-Chain consists of:
1.Research & Development
Accounting Discipline Overview 2.Design
Managerial Accounting –measures, analyzes and reports 3.Production
financial and nonfinancial information to help managers 4.Marketing
make decisions to fulfill organizational goals. Managerial 5.Distribution
accounting need not be GAAP compliant. 6.Customer Service
Financial Accounting –focus on reporting to external users Key Success Factors
including investors, creditors, and governmental agencies. The dimensions of performance that customers expect, and
Financial statements must be based on GAAP. that are key to the success of a company include:
–Cost and efficiency
Major Differences Between Financial & Managerial –Quality
Accounting –Time
–Innovation
Planning & Control Systems
Planning selects goals, predicts results, decides how to
attain goals, and communicates this to the organization
–Budget –the most important planning tool
Control takes actions that implement the planning decision,
decides how to evaluate performance, and provides
feedback to the organization
A Five-Step Decision Making Process in Planning & Control
1.Identify the problem and uncertainties
2.Obtain information
3.Make predictions about the future
4.Make decisions by choosing between alternatives
5.Implement the decision, evaluate performance, and learn
Management Accounting Guidelines
Strategy & Management Accounting Cost –Benefit approach is commonly used: benefits
Strategy –specifies how an organization matches its own generally must exceed costs as a basic decision rule
capabilities with the opportunities in the marketplace to
accomplish its objectives Behavioral & Technical Considerations –people are involved
in decisions, not just dollars and cents .Different definitions
Strategic Cost Management –focuses specifically on the cost of cost may be used for different applications
dimension within a firm’s overall strategy
Professional Ethics
Management accounting helps answer important questions The four standards of ethical conduct for management
such as: accountants as advanced by the Institute of Management
–Who are our most important customers, and how do we Accountants:
deliver value to them? –Competence
–What substitute products exist in the marketplace, and –Confidentiality
how do they differ from our own? –Integrity
–What is our critical capability? –Objectivity
–Will we have enough cash to support our strategy or will
we need to seek additional sources? EXERCISE
Campbell Soup Company incurs the following costs:
Creating value is an important part of planning and a. Purchase of tomatoes by a canning plant for Campbell’s
implementing strategy .Value is the usefulness a customer tomato soup products
gains from a company’s product or service.
M a t a k u l i a h l a i n y a n g b e l u m a d a d i P D F i n i a k a n s a y a u p d a t e d i www. a k u n t a n s i d a n b i s n i s . wo rd p re s s . c o m
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b. Materials purchased for redesigning Pepperidge Farm Direct costs –can be conveniently and economically traced
biscuit containers to make biscuits (tracked) to a cost object
stay fresh longer Indirect costs –cannot be conveniently or economically
c. Payment to Backer, Spielvogel, & Bates, the advertising traced (tracked) to a cost object. Instead of being traced,
agency, for advertising work on Healthy Request line of these costs are allocated to a cost object in a rational and
soup products systematic manner
d. Salaries of food technologists researching feasibility of a
Prego pizza sauce that has minimal calories BMW: Assigning Costs to a Cost Object
e. Payment to Safeway for redeeming coupons on
Campbell’s food products
f. Cost of a toll-free telephone line used for customer
inquiries about using Campbell’s soup products
g. Cost of gloves used by line operators on the Swanson
Fiesta breakfast-food production line
h. Cost of handheld computers used by Pepperidge Farm
delivery staff serving major supermarket accounts
Required Classify each cost item as one of the business
functions in the value chain !
Solution
a. Production
b. Design of products and processes
c. Marketing
d. Research and development
e. Marketing
f. Customer service Cost Examples
g. Production Direct Costs
h. Distribution –Parts
–Assembly line wages
CHAPTER 2
Indirect Costs
An Introduction to Cost Terms and Purposes –Electricity
–Rent
–Property taxes
Basic Cost Terminology
Cost –sacrificed resource to achieve a specific objective Factors Affecting Direct / Indirect Cost Classification
Actual cost –a cost that has occurred Cost Materiality
Budgeted cost –a predicted cost Availability of information-gathering technology
Cost object –anything of interest for which a cost is desired Operational Design
Cost Object Examples at BMW Cost Behavior

Variable costs –changes in total in proportion to changes in
the related level of activity or volume
Fixed costs –remain unchanged in total regardless of
changes in the related level of activity or volume
Costs are fixed or variable only with respect to a specific
activity or a given time period
Variable costs –are constant on a per-unit basis. If a product
takes 5 pounds of materials each, it stays the same per unit
regardless of one, ten or a thousand units are produced
Fixed costs –change inversely with the level of production.
As more units are produced, the same fixed cost is spread
over more and more units, reducing the cost per unit
Basic Cost Terminology Cost Behavior Summarized

Cost accumulation –a collection of cost data in an organized
manner
Cost assignment –a general term that includes gathering
accumulated costs to a cost object. This includes:
–Tracing accumulated costs with a direct relationship to the
cost object and
–Allocating accumulated costs with an indirect relationship
to a cost object
Direct & Indirect Costs
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–Unit costs that include fixed costs should always

reference a given level of output or activity
–Unit Costs are also called Average Costs
Multiple Classification of Costs
Costs may be classified as:
–Direct / Indirect, and
–Variable / Fixed
These multiple classifications give rise to important cost
combinations:
Cost Behavior Visualized –Direct & Variable
–Direct & Fixed
–Indirect & Variable
–Indirect & Fixed
Multiple Classification of Costs, Visualized
Other Cost Concepts

Cost Driver –a variable that causally affects costs over a
given time span
Relevant Range –the band of normal activity level (or
volume) in which there is a specific relationship between
the level of activity (or volume) and a given cost
–For example, fixed costs are considered fixed only
within the relevant range.
Relevant Range Visualized Different Types of Firms
Manufacturing-sector companies –create and sell their own
products
Merchandising-sector companies –product resellers
Service-sector companies –provide services (intangible
products)
Types of Manufacturing Inventories
Direct Materials –resources in-stock and available for use
Work-in-Process (or progress) –products started but not yet
completed. Often abbreviated as WIP
Finished Goods –products completed and ready for sale
Types of Product Costs
Also known as Inventoriable Costs
–Direct Materials
–Direct Labor
A Cost Caveat –Indirect Manufacturing –factory costs that are not
Unit costs should be used cautiously. Since unit costs traceable to the product. Other common names for this
change with a different level of output or volume, it may be type of cost include Manufacturing Overhead costs or
more prudent to base decisions on a total dollar basis. Factory Overhead costs.
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Accounting Distinction Between Costs

Inventoriable costs –product manufacturing costs. These
costs are capitalized as assets (inventory) until they are sold
and transferred to Cost of Goods Sold.
Period costs –have no future value and are expensed as
incurred.
Cost Flows
The Cost of Goods Manufactured and the Cost of Goods
Sold section of the Income Statement are accounting
representations of the actual flow of costs through a
production system.
Note : the importance of inventory accounts in the
following accounting reports, and in the cost flow chart
Cost Flows Visualized
Multiple-Step Income Statement
Cost of Goods Manufactured
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Other Cost Considerations 1. Prepare an income statement with a separate

Prime cost is a term referring to all direct manufacturing supporting schedule of cost of goods Required
costs (labor and materials) manufactured. For all manufacturing items, classify costs
Conversion cost is a term referring to direct labor and as direct costs or indirect
factory overhead costs, collectively costs and indicate by V or F whether each is basically a
Overtime labor costs are considered part of overhead due variable cost or a fixed cost (when the cost object is a
to the inability to precisely know the true cause of these product unit). If in doubt, decide on the basis of whether
costs the total cost will change substantially over a wide range
of units produced.
Different Definitions of Costs for Different Applications
Pricing and product-mix decisions –may use a “super” cost 2. Suppose that both the direct material costs and the
approach (comprehensive) plant-leasing costs are for the production of 900,000 units.
Contracting with government agencies –very specific What is the direct material cost of each unit produced?
definitions of cost for “cost plus profit” contracts What is the plant-leasing cost per unit? Assume that the
Preparing external-use financial statements –GAAP-driven plant-leasing cost is a fixed cost.
product costs only 3. Suppose Foxwood Company manufactures 1,000,000
units next year. Repeat the computation in requirement 2
Different Definitions of Costs for Different Applications for direct materials and plant-leasing costs. Assume the
implied cost-behavior patterns persist.
4. As a management consultant, explain concisely to the
company president why the unit cost for direct materials
did not change in requirements 2 and 3 but the unit cost
for plant-leasing costs did change.
Solution
Three Common Features of Cost Accounting & Cost
Management
1.Calculating the cost of products, services, and other cost
objects
2.Obtaining information for planning & control, and
performance evaluation
3.Analyzing the relevant information for making decisions
EXERCISE :
Foxwood Company is a metal- and woodcutting
manufacturer, selling products to the home construction
market. Consider the following data for 2011:
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Linear Cost Functions Illustrated
CHAPTER 3
Determining How Cost Behave
Cost Functions
A cost function is a mathematical representation of how a
cost changes with changes in the level of an activity relating
to that cost
Cost Terminology
Variable Costs –costs that change in total in relation to
some chosen activity or output
Fixed Costs –costs that do not change in total in relation to
some chosen activity or output
Mixed Costs –costs that have both fixed and variable Criteria for Classifying Variable & Fixed Components of a
components; also called semivariable costs Cost
1.Choice of Cost Object –different objects may result in
Cost Function Assumptions different classification of the same cost
1.Variations in the level of a single activity (the cost driver) 2.Time Horizon –the longer the period, the more likely the
explain the variations in the related total costs cost will be variable
2.Cost behavior is approximated by a linear cost function 3.Relevant Range –behavior is predictable only within this
within the relevant range .Graphically, the total cost versus band of activity
the level of a single activity related to that cost is a straight
line within the relevant rage The Relevant Range Illustrated
Bridging Accounting & Statistical Terminology
Linear Cost Function
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1.Choose the dependent variable (the cost to be predicted)

2.Identify the independent variable or cost driver
3.Collect data on the dependent variable and the cost driver
4.Plot the data
5.Estimate the cost function using the High-Low Method or
Regression Analysis
6.Evaluate the cost driver of the estimated cost function
Sample Cost –Activity Plot
Cause & Effect as it relates toCost Drivers

The most important issue in estimating a cost function is
determining whether a cause-and-effect relationship exists
between the level of an activity and the costs related to that
level of activity.
A cause-and-effect relationship might arise as a result of:
–A physical relationship between the level of activity and
costs
–A contractual agreement High-Low Method
–Knowledge of operations Simplest method of quantitative analysis
Note: a high correlation (connection) between activities and Uses only the highest and lowest observed values
costs does not necessarily mean causality
Cost Estimation Methods
1.Industrial Engineering Method
2.Conference Method
3.Account Analysis Method
4.Quantitative Analysis Methods
1.High-Low Method
2.Regression Analysis
Industrial Engineering Method
Estimates cost functions by analyzing the relationship
between inputs and outputs in physical terms
Includes time-and-motion studies
Very thorough and detailed, but also costly and time-
consuming Steps in the High-Low Method
Also called the Work-Measurement Method 1.Calculate variable cost per unit of activity
Conference Method
Estimates cost functions on the basis of analysis and
opinions about costs and their drivers gathered from
various departments of a company
Pools expert knowledge
Reliance on opinions still make this method subjective
Account Analysis Method 2.Calculate Total Fixed Costs
Estimates cost functions by classifying various cost accounts
as variable, fixed or mixed with respect to the identified
level of activity
Is reasonably accurate, cost-effective, and easy to use, but
is subjective
Qualitative Analysis
Uses a formal mathematical method to fit cost functions to 3.Summarize by writing a linear equation
past data observations . Advantage: results are objective
Steps in Estimating a Cost Function Using Quantitative
Analysis
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Terminology
Goodness of Fit –indicates the strength of the relationship
between the cost driver and costs
Residual Term –measures the distance between actual cost
and estimated cost for each observation
Regression Analysis
Regression analysis is a statistical method that measures the Criteria for Evaluating Alternative Cost Drivers
average amount of change in the dependent variable 1.Economic Plausibility
associated with a unit change in one or more independent 2.Goodness of Fit
variables 3.Significance of the Independent Variable
Is more accurate than the High-Low method because the
regression equation estimates costs using information from Nonlinear Cost Functions
allobservations; the High-Low method uses only 1.Economies of Scale
twoobservations 2.Quantity Discounts
3.Step Cost Functions –resources increase in “lot-sizes”, not
Types of Regression individual units
Simple –estimates the relationship between the dependent 4.Learning Curves –labor hours consumed decrease as
variable and oneindependent variable workers learn their jobs and become better at them
Multiple –estimates the relationship between the 5.Experience Curve –broader application of learning curve
dependent variable and two or moreindependent variables that includes Downstream activities including marketing
and distribution
Sample Regression Model Plot
Nonlinear Cost Functions Illustrated
Alternative Regression Model Plot
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Sample Incremental Unit-Time Model
Types of Learning Curves

Cumulative Average-Time Learning Model –cumulative
average time per unitdeclines by a constant percentage
each time the cumulative quantity of units produced
doubles
Incremental Unit-Time Learning Model –incremental time
needed to produce the last unit declinesby a constant
percentage each time the cumulative quantity of units
produced doubles
Sample Cumulative Average-Time Model
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Time Learning Model Comparative Plots Extreme values of observations occur from errors in
recording costs
There is no homogeneous relationship between the cost
driver and the individual cost items in the dependent
variable-cost pool. A homogeneous relationship exists when
each activity whose costs are included in the dependent
variable has the same cost driver
Data Problems
The relationship between the cost driver and the cost is not
stationary
Inflation has affected costs, the driver, or both
EXERCISE :
The Helicopter Division of GLD, Inc., is examining
helicopter assembly costs at itsIndiana plant. It has
received an initial order for eight of its new land-surveying
helicopters.GLD can adopt one of two methods of
assembling the helicopters:
Predicting Costs Using Alternative Time Learning Models
Required
1. How many direct-assembly labor-hours are required to
assemble the first eight helicoptersUnder
The Ideal Database (a) the labor-intensive method and (b) the machine-
1.The database should contain numerous reliably measured intensive method?
observations of the cost driver and the costs 2. What is the total cost of assembling the first eight
2.In relation to the cost driver, the database should helicopters under
consider many values spanning a wide range (a) the laborintensive
method
Data Problems (b) the machine-intensive method?
The time period for measuring the dependent variable does
not match the period for measuring the cost driver Solution
Fixed costs are allocated as if they are variable 1. a. The following calculations show the labor-intensive
Data are either not available for all observations or are not assembly method based on an85% cumulative average-
uniformly reliable time learning model (using Excel):
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CHAPTER 4
Job Costing
Cumulative average-time per unit for the Xth unit in
column H is calculated as y =aXb;. For example, when X =
3, y = 2,000 3–0.234465 =1,546 labor-hours. Basic Costing Terminology
Several key points from prior chapters:
b. The following calculations show the machine-intensive –Cost Objects -including responsibility centers,
assembly method based ona 90% incremental unit-time departments, customers, products, etc.
learning model: –Direct costs and tracing –materials and labor
–Indirect costs and allocation -overhead
…logically extended
Cost Pool –any logical grouping of related cost objects
Cost-allocation base –a cost driver is used as a basis upon
which to build a systematic method of distributing indirect
costs.
For example, let’s say that direct labor hours cause indirect
costs to change. Accordingly, direct labor hours will be used
to distribute or allocate costs among objects based on their
usage of that cost driver
Costing Systems
Job-Costing: system accounting for distinct cost objects
called Jobs. Each job may be different from the next, and
consumes different resources
–Wedding announcements, aircraft, advertising
Process-Costing: system accounting for mass production of
identical or similar products
Individual unit time for the Xth unit in column H is –Oil refining, orange juice, soda pop
calculated as y = aXb; . For example, when X = 3, y = 800 3–
0.152004 = 677 labor-hours. Costing Approaches
Actual Costing -allocates:
2. Total costs of assembling the first eight helicopters are –Indirect costs based on the actualindirect-cost rates times
as follows: the actual activity consumption
The machine-intensive method’s assembly costs are Normal Costing –allocates:
$66,342 lower than the laborintensivemethod ($892,692 – –Indirect costs based on the budgetedindirect-cost rates
$826,350). times the actual activity consumption
Both methods allocate Direct costs to a cost object the
same way: by using actual direct-cost rates times actual
consumption
Costing Systems Illustrated
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Sample Job Cost Document
Costing Approaches Summarized
Seven-step Job Costing

1.Identify the Job that is the Chosen Cost Object
2.Identify the Direct Costs of the Job
3.Select the Cost-Allocation base(s) to use for allocating
Indirect Costs to the Job
4.Match Indirect Costs to their respective Cost-Allocation
base(s)
5.Calculate an Overhead Allocation Rate:
Actual OH Costs ÷Actual OH Allocation Base
6.Allocate Overhead Costs to the Job:
OH Allocation Rate x Actual Base Activity For the Job
7.Compute Total Job Costs by adding all direct and indirect
costs together
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Sample Job Cost Source Documents closely reflect the actual state of the business, its
inventories and its production processes.
All Product Costs are accumulated in the Work-in-Process
Control Account
–Direct Materials used
–Direct Labor incurred
–Factory Overhead allocated or applied
ActualIndirect Costs (overhead) are accumulated in the
Manufacturing Overhead Control account
Journal Entries, continued
Purchase of Materials on credit:
Materials Control XXX
Accounts Payable Control XXX
Requisition of Direct and Indirect Materials (OH) into
production:
Work-in-Process Control XXX
Manufacturing Overhead Control YYY
Materials Control ZZZ
Incurred Direct and Indirect (OH) Labor Wages
Manufacturing Overhead Control YYY
Cash Control ZZZ
Incurring or recording of various actualIndirect Costs:
Job CostingOverview
Manufacturing Overhead Control XXX
Salaries Payable Control AAA
Accounts Payable Control BBB
Accumulated Depreciation Control CCC
Prepaid Expenses Control DDD
Allocation or application of Indirect Costs (overhead) to the
Work-in-Process account is based on a predetermined
overhead rate.
Manufacturing Overhead Allocated XXX
Note: actual overhead costs are neverposted directly into
Work-in-Process
Products are completed and transferred out of production
in preparation for being sold
Finished Goods Control XXX
Products are sold to customers on credit
Accounts Receivable Control XXX
Sales XXX
And the associated costs are transferred to an expense
(cost) account
Cost of Goods Sold YYY
Journal Entries Finished Goods Control YYY
Journal entries are made at each step of the production
process .The purpose is to have the accounting system
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Note: The difference between the sales and cost of goods This difference will be eliminated in the end-of-period
sold amounts represents the gross margin (profit) on this adjusting entry process, using one of three possible
particular transaction methods
Flow of Costs Illustrated The choice of method should be based on such issues as
materiality, consistency and industry practice
Three Methods for Adjusting Over/Underapplied
Overhead
Adjusted Allocation Rate Approach –all allocations are
recalculated with the actual, exact allocation rate.
Proration Approach –the difference is allocated between
Cost of Goods Sold, Work-in-Process, and Finished Goods
based on their relative sizes
Write-Off Approach –the difference is simply written off to
Cost of Goods Sold
Illustrated Subsidiary Ledger in a Job Cost Environment
Accounting for Overhead

Recall that two different overhead accounts were used in
the preceding journal entries:
–Manufacturing Overhead Control was debited for the
actual overhead costs incurred.
–Manufacturing Overhead Allocated was credited for
estimated (budgeted) overhead applied to production
through the Work-in-Process account.
Actual costs will almost never equal budgeted costs.
Accordingly, an imbalance situation exists between the two
overhead accounts
–If Overhead Control > Overhead Allocated, this is called
UnderallocatedOverhead
–If Overhead Control < Overhead Allocated, this is called
OverallocatedOverhead
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EXERCISE 7. Balance, Work-in-Process Control, December 31, 2011

8. Manufacturing Overhead Underallocated or
You are asked to bring the following incomplete accounts Overallocated for January 2012
of Endeavor Printing, Inc., up-to-date through January 31,
2012. Consider the data that appear in the T-accounts as Solution
well as the following information in items (a) through (j). Amounts from the T-accounts are labeled “(T).”
1. From Materials Control T-account, Materials purchased:
Endeavor’s normal-costing system has two direct-cost $90,000 (c) + $20,000 (e) – $15,000 (T) = $95,000
categories (direct material costs and direct manufacturing 2. From Finished Goods Control T-account, Cost of Goods
labor costs) and one indirect-cost pool (manufacturing Sold: $20,000 (T) + $180,000 (d) – $15,000 (f) = $185,000
overhead costs, which are allocated using direct 3. Direct manufacturing wage rate: $2,000 (b) ÷ 125 direct
manufacturing labor costs). manufacturing labor-hours (b) = $16 per direct
manufacturing labor-hour
Direct manufacturing labor costs: 2,500 direct
manufacturing labor-hours (g) x $16 per hour = $40,000
4. Manufacturing overhead rate: $600,000 (a) ÷ $400,000
(a) = 150%
Manufacturing Overhead Allocated: 150% of $40,000 = 1.50
$40,000 (see 3) = $60,000
5. From Wages Payable Control T-account, Wages Payable
Control, December 31, 2011: $52,000 (h) + $3,000 (T) –
$40,000 (see 3) – $10,000 (g) = $5,000
6. Work-in-Process Control, January 31, 2012: $8,000 (b) +
$2,000 (b) + 150% of $2,000 (b) = $13,000 (This answer is
used in item 7.)
7. From Work-in-Process Control T-account, Work-in-
Process Control, December 31, 2011: $180,000 (d) +
$13,000 (see 6) – $90,000 (c) – $40,000 (see 3) – $60,000
(see 4) = $3,000
8. Manufacturing overhead overallocated: $60,000 (see 4) –
$57,000 (T) = $3,000.
Additional information follows: Letters alongside entries in T-accounts correspond to letters

a. Manufacturing overhead is allocated using a budgeted in the preceding additional information. Numbers alongside
rate that is set every December. Management forecasts entries in T-accounts correspond to numbers in the
next year’s manufacturing overhead costs and next year’s preceding requirements.
direct manufacturing labor costs. The budget for 2012 is
$600,000 for manufacturing overhead costs and $400,000
for direct manufacturing labor costs.
b. The only job unfinished on January 31, 2012, is No. 419,
on which direct manufacturing labor costs are $2,000 (125
direct manufacturing labor-hours) and direct material
costs are $8,000.
c. Total direct materials issued to production during
January 2012 are $90,000.
d. Cost of goods completed during January is $180,000.
e. Materials inventory as of January 31, 2012, is $20,000.
f. Finished goods inventory as of January 31, 2012, is
$15,000.
g. All plant workers earn the same wage rate. Direct
manufacturing labor-hours used for January total 2,500
hours. Other labor costs total $10,000.
h. The gross plant payroll paid in January equals $52,000.
Ignore withholdings.
i. All “actual” manufacturing overhead incurred during
January has already been posted.
j. All materials are direct materials.
Required Calculate the following:
1. Materials purchased during January
2. Cost of Goods Sold during January
3. Direct manufacturing labor costs incurred during
January
4. Manufacturing Overhead Allocated during January
5. Balance, Wages Payable Control, December 31, 2011
6. Balance, Work-in-Process Control, January 31, 2012
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–Units of abnormal spoilage are calculated and recorded in

the Loss from Abnormal Spoilage account, which appears as
a separate line item no the income statement
Process Costing and Spoilage
Units of Normal Spoilage can be counted or not counted
when computing output units (physical or equivalent) in a
process costing system
Counting all spoilage is considered preferable
Inspection Points and Spoilage
Inspection Point –the stage of the production process at
which products are examined to determine whether they
are acceptable or unacceptable units.
Spoilage is typically assumed to occur at the stage of
completion where inspection takes place
The Five-Step Procedure for Process Costing with Spoilage
Step 1: Summarize the flow of Physical Units of Output –
identify both normal and abnormal spoilage
Step 2: Compute Output in Terms of Equivalent Units.
Spoiled units are included in the computation of output
CHAPTER 18 units
Step 3: Compute Cost per Equivalent Unit
Spoilage, Rework,and Scrap Step 4: Summarize Total Costs to Account For
Step 5: Assign Total Costs to:
1.Units Completed
Basic Terminology 2.Spoiled Units
Spoilage –units of production, either fully or partially 3.Units in Ending Work in Process
completed, that do not meet the specifications required by
customers for good units and that are discarded or sold for Steps 1 & 2 Illustrated
reduced prices
Rework –units of production that do not meet the
specifications required by customers but which are
subsequently repaired and sold as good finished goods
Scrap –residual material that results from manufacturing a
product. Scrap has low total sales value compared with the
total sales value of the product
Accounting for Spoilage
Accounting for spoilage aims to determine the magnitude of
spoilage costs and to distinguish between costs of normal
and abnormal spoilage. To manage, control and reduce
spoilage costs, they should be highlighted, not simply folded
into production costs
Types of Spoilage
Normal Spoilage –is spoilage inherent in a particular
production process that arises under efficient operating
conditions :
–Management determines the normal spoilage rate
–Costs of normal spoilage are typically included as a
component of the costs of good units manufactured
because good units cannot be made without also making
some units that are spoiled
Types of Spoilage
Abnormal Spoilage –is spoilage that is not inherent in a
particular production process and would not arise under
normal operating conditions
–Abnormal spoilage is considered avoidable and
controllable
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Steps 3, 4 & 5 Illustrated –Abnormal spoilage costs are not included as a part of the
cost of good units produced
Job Costing and Rework
Three types of rework:
1.Normal rework attributable to a specific job –the rework
costs are charged to that job
2.Normal rework common to all jobs –the costs are charged
to manufacturing overhead and spread, through overhead
allocation, over all jobs
3.Abnormal rework –is charged to the Loss from Abnormal
Rework account that appears on the income statement
Accounting for Scrap
No distinction is made between normal and abnormal scrap
because no cost is assigned to scrap
The only distinction made is between scrap attributable to a
specific job and scrap common to all jobs
Aspects of Accounting for Scrap
1.Planning & Control, including physical tracking
2.Inventory costing, including when and how it affects
operating income
NOTE: Many firms maintain a distinctaccount for scrap costs
Scrap Attributable to a Specific Job–job costing systems
sometime trace the scrap revenues to the jobs that yielded
the scrap.
–Done only when the tracing can be done in an economic
feasible way
–No cost assigned to scrap
Scrap Common to all Jobs–all products bear production
costs without any credit for scrap revenues except in an
indirect manner
–Expected scrap revenues are considered when setting is
lower than it would be if the overhead budget had not been
reduced by expected scrap revenues
Recognizing Scrap at the Time of its Production–sometimes
the value of the scrap is material, and the time between
storing and selling it can be long
The firm assigns an inventory cost to scrap at a conservative
Job Costing and Spoilage estimate of its net realizable valueso that production costs
Job costing systems generally distinguish between normal and related scrap revenues are recognized in the same
spoilage attributable to a specific job from normal spoilage accounting period
common to all jobs
EXERCISE :
Job Costing and Accounting for Spoilage
Normal Spoilage Attributable to a Specific Job: When Burlington Textiles has some spoiled goods that had an
normal spoilage occurs because of the specifications of a assigned cost of $40,000 and zeronet disposal value.
particular job, that job bears the cost of the spoilage minus
the disposal value of the spoilage Required :
Prepare a journal entry for each of the following
Normal Spoilage Common to all Jobs: IN some cases, conditions under (a) process costing
spoilage may be considered a normal characteristic of the (department A) and (b) job costing:
production process. 1. Abnormal spoilage of $40,000
–The spoilage is costed as manufacturing overhead because 2. Normal spoilage of $40,000 regarded as common to all
it is common to all jobs operations
–The Budgeted Manufacturing Overhead Rate includes a 3. Normal spoilage of $40,000 regarded as attributable to
provision for normal spoilage specifications of a particular job
Abnormal Spoilage: If the spoilage is abnormal, the net loss
is charged to the Loss From Abnormal Spoilage account Solution
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Byproducts –outputs of a joint production process that have

low sales values compare to the sales values of the other
outputs
Examples of Joint Cost Situations
Joint Process Overview
CHAPTER 16
Cost Allocation : Join Prducts and Byproducts
Joint Cost Terminology
Joint Costs –costs of a single production process that yields
multiple products simultaneously.
Splitoff Point –the place in a joint production process where
two or more products become separately identifiable
Separable Costs –all costs incurred beyond the splitoff point
that are assignable to each of the now-identifiable specific
products Reasons for Allocating Joint Costs
Required for GAAP and taxation purposes
Joint Cost Terminology Cost values may be used for evaluation purposes
Categories of Joint Process Outputs: Cost-based Contracting
1.Outputs with a positive sales value Insurance Settlements
2.Outputs with a zero sales value Required by regulators
Litigation
Product –any output with a positive sales value, or an
output that enables a firm to avoid incurring costs Joint Cost Allocation Methods
–Value can be high or low Market-Based –allocate using market-derived data (dollars):
1.Sales value at splitoff
Main Product –output of a joint production process that 2.Net Realizable Value (NRV)
yields one product with a high sales value compared to the 3.Constant Gross-Margin percentage NRV
sales values of the other outputs
Physical Measures –allocate using tangible attributes of the
Joint Products –outputs of a joint production process that products, such as pounds, gallons, barrels, etc
yields two or more products with a high sales value
compared to the sales values of any other outputs
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Sales Value at Splitoff Method Sales Value at Splitoff Illustration

Uses the sales value of the entire production of the
accounting period to calculate allocation percentage
Ignores inventories
Joint Cost Illustration Data
Joint Cost Illustration Overview
Net Realizable Value Method

Allocates joint costs to joint products on the basis of relative
NRV of total production of the joint products Constant Gross Margin NRV Method
NRV = Final Sales Value –Separable Costs Allocates joint costs to joint products in an way that the
overall gross-margin percentage is identical for the
individual products
Joint Costs are calculated as a residual amount
Physical-Measure Method
Allocates joint costs to joint products on the basis of the
relative weight, volume, or other physical measure at the
splitoff point of total production of the products
Method Selection
If selling price at splitoff is available, use the Sales Value at
Splitoff Method
If selling price at splitoff is not available, use the NRV
method
If simplicity is the primary consideration, Physical-Measures
Method or the Constant Gross-Margin Method could be
used
Despite this, some firms choose not to allocate joint costs at
all
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Net Realizable Value Method Illustrated Sales Method –recognizes no byproduct inventory, and
recognizes only sales at the time of sales: byproduct costs
are not tracked separately
Constant Gross Margin NRV Illustrated
Sell-or-Process Further Decisions

In Sell-or-Process Further decisions, joint costs are Sell-or-Process Further Flowchart
irrelevant. Joint products have been produced, and a
prospective decision must be made: to sell immediately or
process further and sell later.
Joint Costs are sunk
Separable Costs need to be evaluated for relevance
individually
Byproducts
Two methods for accounting for byproducts
Production Method –recognizes byproduct inventory as it is
created, and sales and costs at the time of sale
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Byproducts Illustration Overview Comparative Income Statements for Accounting for

Byproducts
Physical measure method
EXERCISE :
Inorganic Chemicals (IC) processes salt into various
industrial products. In July 2012, ICincurred joint costs of
$100,000 to purchase salt and convert it into two
products: causticsoda and chlorine. Although there is an
active outside market for chlorine, IC processesall 800 tons
of chlorine it produces into 500 tons of PVC (polyvinyl
chloride), which isthen sold. There were no beginning or
ending inventories of salt, caustic soda, chlorine, orPVC in
July. Information for July 2012 production and sales
follows:
1. Allocate the joint costs of $100,000 between caustic

soda and PVC under (a) the sales Requiredvalue at splitoff
method and (b) the physical-measure method.
2. Allocate the joint costs of $100,000 between caustic
soda and PVC under theNRV method.
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3. Under the three allocation methods in requirements 1 2. Net realizable value (NRV) method
and 2, what is the gross-marginpercentage of (a) caustic
soda and (b) PVC?
4. Lifetime Swimming Pool Products offers to purchase 800
tons of chlorine in August2012 at $75 per ton. Assume all
other production and sales data are the same forAugust as
they were for July. This sale of chlorine to Lifetime would
mean that noPVC would be produced by IC in August. How
would accepting this offer affect IC’sAugust 2012 operating 3a. Gross-margin percentage of caustic soda
income?
Solution
The following picture provides a visual illustration of the
main facts in this problem.
3b. Gross-margin percentage of PVC
4. Sale of chlorine versus processing into PVC
Note that caustic soda is sold as is while chlorine, despite

having a market value at splitoff,is sold only in processed
form as PVC. The goal is to allocate the joint costs
of$100,000 to the final products—caustic soda and PVC.
However, since PVC exists only inthe form of chlorine at the If IC sells 800 tons of chlorine to Lifetime Swimming Pool
splitoff point, we use chlorine’s sales value and physical Products instead of furtherprocessing it into PVC, its August
measureas the basis for allocating joint costs to PVC under 2012 operating income will be reduced by $20,000.
the sales value at splitoff and physicalmeasure at splitoff
methods. Detailed calculations are shown next. CHAPTER 20
1a. Sales value at splitoff method Inventory Management, Just-in-Time, and Simplified
Costing Methods
Inventory Management in Retail Organizations

Inventory Management is planning, coordinating, and
controlling activities related to the flow of inventory into,
1b. Physical-measure method through, and out of an organization
Costs Associated with Goods for Sale
Managing inventories to increase net income requires
effectively managing costs that fall into these five
categories:
1.Purchasing Costs
2.Ordering Costs
3.Carrying Costs
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4.Stockout Costs Ordering & Carrying Costs Illustrated

5.Quality Costs
Management of Inventory Costs
1.Purchasing Costs –the cost of goods acquired from
suppliers, including freight
2.Ordering Costs –the costs of preparing and issuing
purchase orders, receiving and inspecting the items
included in the orders, and matching invoices received,
purchases orders and delivery records to make payments
3.Carrying Costs –the costs that arise while holding
inventory of goods for sale. This includes the opportunity
cost of the investment tied up in inventory, and costs
associated with storage
4.Stockout Costs –the costs that result when a company
runs out of a particular item for which there is customer
demand (stockout) and the company must act quickly to
meet the demand or suffer the costs of not meeting it
5.Quality Costs –the costs that result when features and
characteristics of a product or service are not in
conformance with customer specifications. These costs Ordering Points
include: The second decision in managing goods for sale is when to
order a given product
1.Prevention
2.Appraisal Reorder Point –the quantity level of inventory on hand that
3.Internal Failure triggers a new purchase order
4.External Failure
The First Step in Managing Goods for Sale
The first decision in managing goods for sale is how much to
order of a given product
Ordering Points Illustrated
Economic Order Quality (EOQ) is a decision model that
calculates the optimal quantity of inventory to order under
a given set of assumptions
Basic EOQ Assumptions
There are only ordering & carrying costs
The same quantity is ordered at each reorder point
Demand, purchase-order lead time, ordering costs, and
carrying costs are known with certainty
Purchasing costs per unit are unaffected by the quantity
ordered
No stockouts occur
EOQ ignores purchasing costs, stockout costs and quality
costs
EOQ Formula
D = Demand in units for specified period

P = Relevant ordering costs per purchase order
C = Relevant carrying costs of one unit in stock for the
time period used for D
Inventory Management and Safety Stock
Safety Stock is inventory held at all times regardless of the
quantity of inventory ordered using the EOQ model
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–Safety stock is a buffer against unexpected increases in Relevant Incremental Costs –those costs of the purchasing
demand, uncertainty about lead time, and unavailability of firm that change with the quantity of inventory held
stock from suppliers
Opportunity Costs
Safety Stock Computation Illustration Relevant Opportunity Cost of Capital –the return foregone
by investing capital in inventory rather than elsewhere. This
cost equals the required rate of return multiplied by the
unit costs that vary with the number of units purchased and
are incurred at the time the units are received
Cost of a Prediction Error
Three steps in determining the cost of a prediction error:
1.Compute the monetary outcome from the best action
that could be taken, given the actual amountof the cost per
purchase order
2.Compute the monetary outcome from the best action
based on the incorrect amountof the predictedcost per
purchase order
3.Compute the difference between Steps 1 & 2
Just-in-Time Purchasing
Just-in-Time (JIT) Purchasing is the purchase of materials or
goods so they are delivered just as needed for production or
sales
JIT is popular because carrying costs are actually much
greater than estimated because warehousing, handing,
shrinkage and investment costs have not been correctly
estimated
JIT reduces the cost of placing a purchase order because:
–Long-term purchasing agreements define price and quality
terms. Individual purchase orders covered by those
agreements require no additional negotiation regarding
price or quality
–Companies are using electronic links to place purchase
orders at a small fraction of traditional methods (phone or
mail)
–Companies are using purchase-order cards
Relevant Costs in JIT Purchasing
Purchasing Costs
Stockout Costs
Quality Costs
Relationship Between Carrying & Ordering Costs
Illustrated
Estimating Inventory-Related Relevant Costs

Carrying Costs
Stockout Costs
Ordering Costs
Carrying Costs
Relevant inventory carrying costs consist of relevant
incremental costs and the relevant opportunity cost of
capital
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JIT Purchasing and Supply-Chain Analysis

Supply chain describes the flow of goods, services, and
information from the initial sources of materials and
services to the delivery of products to consumers (both
inside & outside the firm)
Supply Chain members share information and
plan/coordinate activities
Supplier evaluations are critical to JIT Purchasing
implementation
Analysis of Alternative Purchasing Policies Illustrated
Supplier Evaluation Illustrated
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Inventory Management and Materials Requirements ERP can be expensive, large, and unwieldy
Planning
Materials Requirements Planning (MRP) –a “push-through” Performance Measures and Control in JIT
system that manufactures finished goods for inventory on Financial performance measures such as inventory turnover
the basis of demand forecasts ratio
Nonfinancial performance measures of time, inventory, and
MRP Information Inputs quality such as:
MRP uses three information sources to determine the –Manufacturing lead times
necessary outputs at each stage of production –Units produced per hour
1.Demand forecasts of final products –Days of inventory on hand
2.A bill of materials detailing the materials, components, –Setup time as a % of total manufacturing time
and subassemblies for each final product –Number of defective units as a % of total units produced
3.The quantities of materials, components, and product
inventories to determine the necessary outputs at each Backflush Costing
stage of production Backflush Costing omits recording some or all of the journal
entries relating to the stages from the purchase of direct
MRP materials to the sale of finished goods
Takes into account lead time to purchase materials and to –Since some stages are omitted, the journal entries for a
manufacture components and finished products subsequent stage use normal or standard costs to work
Sets a master production schedule specifying quantities and backward to “flush out” the costs in the cycle for which
timing of each item to be produced journal entries were not made
The output of each department is pushed through the
production line whether it is needed or not Contrasts to traditional normal and standard costing
“Push Through” may result in an accumulation of inventory systems using sequential tracking: recording journal entries
at each trigger point in the production process
Inventory Management and JIT Production
JIT (Lean) Production –is a “demand-pull” manufacturing Special Considerations in Backflush Costing
system that manufactures each component in a production Backflush costing does not necessarily comply with GAAP
line as soon as and only when needed by the next step in –However, inventory levels may be immaterial, negating the
the production line necessity for compliance
Demand triggers each step of the production process,
starting with customer demand for a finished product and Backflush costing does not leave a good audit trail –the
working backward ability of the accounting system to pinpoint the uses of
Demand pulls an order through the production line resources at each step of the production process
Sample Journal Entries in Backflush Costing
JIT Production Goals
1.Meet customer demand in a timely basis, SampleGeneral LedgerFlows inBackflushCosting
2.with high-quality products,
3.at the lowest possible cost.
JIT Production Features
Production is organized in manufacturing cells, a grouping
of all the different types of equipment used to make a given
product
Workers are hired and trained to be multi-skilled (cross-
trained)
Defects are aggressively eliminated
Setup time is reduced
Suppliers are selected on the basis of their ability to deliver
quality materials in a timely manner
Other Benefits of JIT Production
Lower overhead costs
Lower inventory levels
Heightened emphasis on improving quality by eliminating
the specific causes of rework, scrap, and waste
Lower manufacturing lead times
JIT and Enterprise Resource Planning Systems (ERP)
JIT success hinges on the speed of information flows from
customers to manufacturers to suppliers
ERP is a system with a single database that collects data and
feeds it into software applications supporting all of a firm’s
business activities
ERP gives managers, workers, customers and suppliers
access to operating information
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Problem 2
Littlefield Company uses a backflush costing system with
three trigger points:
 Purchase of direct materials
 Completion of good finished units of product
 Sale of finished goods
There are no beginning inventories. Information for April
2011 is as follows:
Direct materials purchased $880,000
Conversion costs allocated $ 400,000
Direct materials used $850,000
Costs transferred to finished goods $1,250,000
Conversion costs incurred $422,000
Cost of goods sold $1,190,000
1. Prepare journal entries for April (without disposing of
underallocated or overallo- Required
cated conversion costs). Assume there are no direct
materials variances.
2. Under an ideal JIT production system, how would the
amounts in your journal
entries differ from the journal entries in requirement 1?
Solution
1. Journal entries for April are as follows:
Lean Accounting
Lean Accounting is a costing method that supports creating
value for the customer by costing the entire value stream,
not individual products or departments, thereby eliminating
waste in the accounting process
EXERCISE
Problem 1
Lee Company has a Singapore plant that manufactures
MP3 players. One component isan XT chip. Expected 2. Under an ideal JIT production system, if the
demand is for 5,200 of these chips in March 2011. Lee manufacturing lead time per unit is very short, there would
estimatesthe ordering cost per purchase order to be $250. be zero inventories at the end of each day. Entry (C1) would
The monthly carrying cost for one unitof XT in stock is $5. be $1,190,000 finished goods production [to match finished
Required goods sold in entry (D1)], not $1,250,000. If the marketing
1. Compute the EOQ for the XT chip. department could only sell goods costing $1,190,000, the
2. Compute the number of deliveries of XT in March 2011. JIT production system would call for direct materials
Solution purchases and conversion costs of lower than $880,000 and
$422,000, respectively, in entries (A1) and (A2).
CHAPTER 14
Cost Allocation, Customer Profitability Analysis,
And Sales-Variance Analysis
Cost Allocation
Assigning indirect costs to cost objects
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These costs are not traced –Cost allocation here is viewed as a “reasonable” or “fair”
Indirect costs often comprise a large percentage of Total means of establishing selling price
Overall Costs
Ability to Bear –cost are allocated in proportion to the cost
Purposes of Cost Allocation object’s ability to bear them
–Generally, larger or more profitable objects receive
proportionally more of the allocated costs
Cost Allocation Illustrated
Six-Function Value Chain
Traditional Life Cycle approach may not yield the costs

necessary to meet the four-purpose criteria for cost
allocation
Costs necessary for decision-making may pull costs from
someor all of these six functions
Criteria for Cost-Allocation Decisions
Cause and Effect –variables are identified that cause
resources to be consumed
–Most credible to operating managers
–Integral part of ABC
Customer Revenues and Customer Costs
Benefits Received –the beneficiaries of the outputs of the Customer-Profitability Analysis is the reporting and analysis
cost object are charged with costs in proportion to the of revenues earned from customers and costs incurred to
benefits received earn those revenues
An analysis of customer differences in revenues and costs
Fairness (Equity) –the basis for establishing a price can provide insight into why differences exist in the
satisfactory to the government and its suppliers. operating income earned from different customers
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Customer Revenues Customer Profitability Analysis Illustrated (Customer

Price discounting is the reduction of selling prices to distribution channels)
encourage increases in customer purchases
–Lower sales price is a tradeoff for larger sales volumes
Discounts should be tracked by customer and salesperson
Customer Cost Analysis
Customer Cost Hierarchy categorizes costs related to
customers into different cost pools on the basis of different:
–types of drivers –cost-allocation bases
–degrees of difficulty in determining cause-and-effect or
benefits-received relationships
Customer Cost Hierarchy Example
1.Customer output unit-level costs
2.Customer batch-level costs
3.Customer-sustaining costs
4.Distribution-channel costs
5.Corporate-sustaining costs
Other Factors in Evaluating Customer Profitability
Likelihood of customer retention
Potential for sales growth
Long-run customer profitability
Increases in overall demand from having well-known
customers
Ability to learn from customers
Customer Profitability Analysis Illustrated
Customer Profitability Analysis Illustrated (Customer

Ranked on Customer-Level Operating Income
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Sales-Quantity Variance
Flexible-Budget and Sales-Volume Variances Illustrated
Customer Profitability Analysis Illustrated (Retail Channel

Customer)
Sales Variances
Level 1: Static-budget variance –the difference between an
actual result and the static-budgeted amount
Level 2: Flexible-budget variance –the difference between
an actual result and the flexible-budgeted amount
Level 2: Sales-volume variance
Level 3: Sales Quantity variance
Level 4: Sales Mix variance
Sales-Mix Variance
Measures shifts between selling more or less of higher or
lower profitable products
Market-Share Variance
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Sales-Mix and –Quantity Variances Illustrated Market-Share and –Size Variances Illustrated
Market-Size Variance
Market-Share and Market-Size Variances

Limitation: reliable information on the actual size and share
of various markets is not always available
These are considered Level 4 variances (a decomposition of
the Sales-Quantity variance
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Sales Variances Summarized In late 2011, a marketing research firm estimated industry
volume for commercial andresidential vinyl flooring for
2012 at 800,000 rolls. Actual industry volume for 2012 was
700,000 rolls.
1. Compute the sales-mix variance and the sales-quantity
variance by type of vinyl Requiredflooring and in total.
(Compute all variances in terms of contribution margins.)
2. Compute the market-share variance and the market-size
variance
3. What insights do the variances calculated in
requirements 1 and 2 provide aboutPayne Company’s
performance in 2012?
Solution
1. Actual sales-mix percentage:
Budgeted sales-mix percentage:
Budgeted contribution margin per unit:
EXERCISE
The Payne Company manufactures two types of vinyl
flooring. Budgeted and actual operating data for 2012 are
as follows:
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2. Actual market share = 84,000 ÷ 700,000 = 0.12, or 12% CHAPTER 15

Budgeted market share = 80,000 ÷ 800,000 units = 0.10, or
10%. Budgeted contribution margin per composite unit of Allocation of Support Department Costs, Common
budgeted mix can also be calculatedas follows: Costs, and Revenues
Allocating Costs of a Supporting Department to Operating

Departments
Supporting (Service) Department –provides the services
that assist other internal departments in the company
Operating (Production) Department –directly adds value to
a product or service
Methods to Allocate Support Department Costs
Single-rate method –allocates costs in each cost pool
(service department) to cost objects (production
departments) using the same rate per unit of a single
allocation base
–No distinction is made between fixed and variable costs in
this method
Dual-Rate method –segregates costs within each cost pool
into two segments: a variable-cost pool and a fixed-cost
pool.
Each pool uses a different cost-allocation base
Allocation Method Tradeoffs
Single-Rate method is simple to implement, but treats fixed
costs in a manner similar to variable costs
Dual-Rate method treats fixed and variable costs more
realistically, but is more complex to implement
Allocation Bases
Under either method, allocation of support costs can be
based on one of the three following scenarios:
1.Budgeted overhead rate and budgeted hours
2.Budgeted overhead rate and actual hours
3.Actual overhead rate and actual hours
Choosing between actual and budgeted rates: budgeted is
known at the beginning of the period, while actual will not
be known with certainty until the end of the period
Note that the algebraic sum of the market-share variance Comparative Allocation Bases Illustrated
and the market-size varianceis equal to the sales-quantity
variance: $5,950,000 F + $4,250,000 U = $1,700,000 F.
3. Both the total sales-mix variance and the total sales-
quantity variance are favorable. Thefavorable sales-mix
variance occurred because the actual mix comprised more
of thehigher-margin commercial vinyl flooring. The
favorable total sales-quantity varianceoccurred because the
actual total quantity of rolls sold exceeded the budgeted
amount.The company’s large favorable market-share
variance is due to a 12% actualmarket share compared with
a 10% budgeted market share. The market-size varianceis
unfavorable because the actual market size was 100,000
rolls less than the budgetedmarket size. Payne’s
performance in 2012 appears to be very good.
Althoughoverall market size declined, the company sold
more units than budgeted and gainedmarket share.
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Step-Down Method
Methods of Allocating Support Costs to Production Data Used in Cost Allocation Illustrations
Departments
1.Direct
2.Step-Down
3.Reciprocal
Direct Method
Allocates support costs only to Operating Departments
No Interaction between Support Departments prior to
allocation
Direct Method
Step-Down Method
Allocates support costs to other support departments and
to operating departments that partially recognizes the
mutual services provided among all support departments
One-Way Interaction between Support Departments prior
to allocation
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Direct Allocation Method Illustrated Step-Down Allocation Method Illustrated
Direct Allocation Method Illustrated, cont.

Step-Down Allocation Method Illustrated
Step-Down Allocation Method Illustrated
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Reciprocal Method Individual costs are added together and allocation

Allocates support department costs to operating percentages are calculated from the whole, and applied to
departments by fully recognizing the mutual services the common cost
provided among all support departments
Full Two-Way Interaction between Support Departments Incremental Cost-Allocation Method ranks the individual
prior to allocation users of a cost object in the order of users most responsible
for a common cost and then uses this ranking to allocate
the cost among the users
–The first ranked user is the Primary User and is allocated
costs up the cost as a stand-alone user (typically gets the
highest allocation of the common costs)
–The second ranked user is the First Incremental User and is
allocated the additional cost that arises from two users
rather than one
–Subsequent users handled in the same manner as the
second ranked user
Reciprocal Allocation Method (Repeated Iterations)
Illustrated
Reciprocal Allocation Method (Linear Equations)

Illustrated
Choosing Between Methods

Reciprocal is the most precise
Direct and Step-Down are simple to compute and
understand
Direct Method is widely used
Allocating Common Costs
Common Cost –the cost of operating a facility, activity, or
like cost object that is sharedby two or more users at a
lower cost than the individual cost of the activity to each
user
Stand-Alone Cost-Allocation Method –uses information
pertaining to each user of a cost object as a separate entity
to determine the cost-allocation weights
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Cost Allocations and Contracting

The US government reimburses most contractors in either
of two main ways:
1.The contractor is paid a set price without analysis of
actual contract cost data.
2.The contractor is paid after an analysis of actual contract
cost data. In some cases, the contract will state that the
reimbursement amount is based on actual allowable costs
plus a fixed fee (cost-plus contract)
Revenue Allocation and Bundled Products
Revenue Allocation occurs when revenues are related to a
particular revenue object but cannot be traced to it in an
economically feasible manner
Revenue Object –anything for which a separate
measurement of revenue is desired
Bundled Product –a package of two or more products or
services that are sold for single price, but individual
components of the bundle also may be sold as separate
items at their own “stand-alone” prices
Methods to Allocate Revenue to Bundled Products
Stand-Alone (separate) Revenue Allocation Method uses
product-specific information on the products in the bundle
as weights for allocating the bundled revenues to the
individual products. Three types of weights may be used:
1.Selling Prices
2.Unit Costs
3.Physical Units
Incremental Revenue-Allocation Method ranks individual
products in a bundle according to criteria determined by
management and then uses this ranking to allocate bundled
revenues to individual products (similar to earlier discussed
Incremental Cost-Allocation Method)
–The first-ranked product is the primary product
–The second-ranked product is the first incremental product
–The third-ranked product is the second incremental
product, etc
EXERCISE
This problem illustrates how costs of two corporate
support departments are allocated to operating divisions
using the dual-rate method. Fixed costs are allocated using Solution
budgetedcosts and budgeted hours used by other Exhibit 15-7 presents the computations for allocating the
departments. Variable costs are allocated using actual fixed and variable supportdepartmentcosts. A summary of
costs and actual hours used by other departments. these costs follows:
Computer Horizons budgets the following amounts for its

two central corporate support departments (legal and
personnel) in supporting each other and the two
manufacturing divisions, the laptop division (LTD) and the
work station division (WSD):
(SEE NEXT PAGE)
Required What amount of support-department costs for
legal and personnel will be allocated to LTD and WSD using
(a) the direct method, (b) the step-down method
(allocating the legal department costs first), and (c) the
reciprocal method using linear equations?
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Alternative Methods of Allocating Corporate Support-

Department Costs to Operating Divisions ofComputer
Horizons: Dual-Rate Method
CHAPTER 5
ACTIVITY BASED COSTING
Background
Recall that Factory Overhead is applied to production in a
rational systematic manner, using some type of averaging.
There are a variety of methods to accomplish this goal.
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These methods often involve tradeoffs between simplicity Plastim and ABC Illustrated
and realism
Broad Averaging
Historically, firms produced a limited variety of goods while
their indirect costs were relatively small.
Allocating overhead costs was simple: use broad averages
to allocate costs uniformly regardless of how they are
actually incurred
–Peanut-butter Costing
The end-result: overcosting & undercosting
Over & Undercosting
Overcosting –a product consumes a low level of resources
but is allocated high costs per unit
Undercosting –a product consumes a high level of resources
but is allocated low costs per unit
Cross-subsidization
The results of overcosting one product and undercosting
another.
The overcosted product absorbs too much cost, making it
seem less profitable than it really is
The undercosted product is left with too little cost, making
it seem more profitable than it really is
Plastim & Simple Costing
Conclusions
Each method is mathematically correct
Each method is acceptable
Each method yields a different cost figure, which will lead to
different Gross Margin calculations
Only Overhead is involved. Total Costs for the entire firm
remain the same –they are just allocated to different cost
objects within the firm
Selection of the appropriate method and drivers should be
based on experience, industry practices, as well as a cost-
benefit analysis of each option under consideration
A Cautionary Tale
A number of critical decisions can be made using this
information;
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–Should one product be “pushed” over another? Plastim and ABC Product Costs
Accounting for overhead costs is an imprecise science.
Accordingly, best efforts should be put forward to arrive at
a cost that is fair and reasonable.
Rationale for selecting a more refined costing system
Increase in product diversity
Increase in Indirect Costs
Advances in information technology
Competition in foreign markets
Plastim and ABC Rate Calculation
Cost Hierarchies
ABC uses a four-level cost structure to determine how far
down the production cycle costs should be pushed:
–Unit-level (output-level)–Batch-level
–Product-sustaining-level–Facility-sustaining-level
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Plastim: Simple & ABC Compared

ABC vs. Simple Costing Schemes
ABC is generally perceived to produce superior costing
figures due to the use of multiple drivers across multiple
levels
ABC is only as good as the drivers selected, and their actual
relationship to costs. Poorly chosen drivers will produce
inaccurate costs, even with ABC
Activity-Based Management
A method of management that used ABC as an integral part
in critical decision-making situations, including:
–Pricing & product-mix decisions
–Cost reduction & process improvement decisions
–Design decisions
–Planning & managing activities
Signals that suggest that ABC implementation could help a
firm:
Significant overhead costs allocated using one or two cost
pools
Most or all overhead is considered unit-level
Products that consume different amounts of resources
Products that a firm should successfully make and sell
consistently show small profits
Operations staff disagreeing with accounting over
manufacturing and marketing costs
ABC and Service / Merchandising Firms
ABC implementation is widespread in a variety of
applications outside manufacturing, including:
–Health Care
–Banking
–Telecommunications
–Retailing
–Transportation
EXERCISE
Family Supermarkets (FS) has decided to increase the size
of its Memphis store. It wants information about the
profitability of individual product lines: soft drinks, fresh
produce, and packaged food. FS provides the following
data for 2011 for each product line:
1. Family Supermarkets currently allocates store support

costs (all costs other than cost Requiredof goods sold) to
product lines on the basis of cost of goods sold of each
product line.Calculate the operating income and operating
income as a percentage of revenues foreach product line.
2. If Family Supermarkets allocates store support costs (all
costs other than cost ofgoods sold) to product lines using
an ABC system, calculate the operating income and
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operating income as a percentage of revenues for each

product line.
3. Comment on your answers in requirements 1 and 2.
Solution
1. The following table shows the operating income and
operating income as a percentage of revenues for each
product line. All store support costs (all costs other than
cost of goods sold) are allocated to product lines using cost
of goods sold of each product line as the cost-allocation
base. Total store support costs equal $360,000 (cost of
bottles returned, $4,800 + cost of purchase orders, $62,400
+ cost of deliveries, $100,800 + cost of shelf-stocking,
$69,120 + cost of customer support, $122,880). The
allocation rate for store support costs = $360,000 ÷
$1,200,000 (soft drinks $240,000 + fresh produce $600,000
+ packaged food, $360,000) = 30% of cost of goods sold. To
allocate support costs to each product line, FS multiplies the
cost of goods sold of each product line by 0.30.
2. Under an ABC system, FS identifies bottle-return costs as

a direct cost because these costs can be traced to the soft
drink product line. FS then calculates cost-allocation rates
for each activity area (as in Step 5 of the seven-step costing
system, described in the chapter, p. 152). The activity rates
are as follows:
3. Managers believe the ABC system is more credible than

the simple costing system. TheABC system distinguishes the
different types of activities at FS more precisely. It
alsotracks more accurately how individual product lines use
resources. Rankings of relativeprofitability—operating
income as a percentage of revenues—of the three product
lines under the simple costing system and under the ABC
system are as follows:
Store support costs for each product line by activity are

obtained by multiplying the totalquantity of the cost-
allocation base for each product line by the activity cost
rate. Operatingincome and operating income as a
percentage of revenues for each product line are as follows:
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The percentage of revenues, cost of goods sold, and activity

costs for each product line are UTS SEMESTER GANJIL 2012/2015
as follows: AKUNTANSI BIAYA
CLOSED BOOK
Question 1 (10%)
Adi Nugraha was recently hired as assistant controller of PT
Godong Ijo, which processes chemicals for use in fertilizers.
Adi was selected for this position because of his past
experience in the chemical processing field. During his first
month on the job, Adi made a point of getting to know the
people responsible for the plant operations and learning
how things are done at PT Godong Ijo.
During a conversation with the plant supervisor, Adi asked
Soft drinks have fewer deliveries and require less shelf- about the company procedures for handling toxic waste
stocking time and customer supportthan either fresh materials. The plant supervisor replied that he was not
produce or packaged food. Most major soft-drink suppliers involved with the disposal of wastes and suggested that Adi
deliver merchandiseto the store shelves and stock the might be wise to ignore this issue. This response
shelves themselves. In contrast, the fresh produce areahas strengthened Adi’s determination to probe this area further
the most deliveries and consumes a large percentage of to be sure that the company was not vulnerable to
shelf-stocking time. It also has thehighest number of litigation.
individual sales items and so requires the most customer
support. The simplecosting system assumed that each Upon further investigation, Adi discovered evidence that PT
product line used the resources in each activity area inthe Godong Ijo was using a nearby residential landfill to dump
same ratio as their respective individual cost of goods sold toxic wastes. It appeared that some members of PT Godong
to total cost of goods sold. Ijo’s management team were aware of this situation and
may have been involved in arranging for this dumping;
Clearly, this assumption is incorrect. Relative to cost of however, Adi was unable to determine whether his
goods sold, soft drinks and packagedfood use fewer superior, the controller, was involved.
resources while fresh produce uses more resources. As a
result, the ABC systemreduces the costs assigned to soft Uncertain how he should proceed, Adi began to consider his
drinks and packaged food and increases the costs assigned options by outlining the following three alternative courses
tofresh produce. The simple costing system is an example of of action.
averaging that is too broad.FS managers can use the ABC  Seek the advice of his superior, the controller
information to guide decisions such as how to allocatea  Anonymously release the information to the local
planned increase in floor space. An increase in the newspaper.
percentage of space allocated to softdrinks is warranted.  Discuss the situation with an outside member of the
Note, however, that ABC information should be but one board of directors with whom he is acquainted
input intodecisions about shelf-space allocation. FS may
have minimum limits on the shelf spaceallocated to fresh Required:
produce because of shoppers’ expectations that a. Discuss why Adi has an ethical responsibility to take some
supermarkets will carryproducts from this product line. action in the matter of PT Godong Ijo and the dumping of
toxic wastes. Refer to the specific standards of IMA
In many situations, companies cannot make Statement of Ethical Professional Practice to support your
productdecisions in isolation but must consider the effect answer. ( 4 points )
that dropping or deemphasizing a productmight have on
customer demand for other products.Pricing decisions can b. For each of the three alternative courses of action that
also be made in a more informed way with ABC Adi has outlined, explain whether or not the action is
information.For example, suppose a competitor announces appropriate. Use the IMA Statement of Ethical Professional
a 5% reduction in soft-drink prices. Giventhe 10.78% margin Practice to support your answer ( 3 points )
FS currently earns on its soft-drink product line, it has
flexibility toreduce prices and still make a profit on this c. Without prejudice to your answer in Question (b), assume
product line. In contrast, the simple costingsystem that Adi sought the advice of his superior, the controller,
erroneously implied that soft drinks only had a 1.70% and discovered that the controller was involved in the
margin, leaving little roomto counter a competitor’s pricing dumping of toxic wastes. Using IMA Statement of Ethical
initiatives. Professional Practice to support your answer, describe the
steps that Adi should take to resolve this situation. ( 3
points )
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Question 2 (20%) Required:

PT Segar Abadi manufactures fan with specifications as a. Calculate the cost formula for re-bonding services using
presented by the picture on the side. Here is data for the the high-low method. ( 5 points)
fan’s production costs (in Rp) for September 2012. b. Predict the cost of re-bonding services for January 20X2
for 110 visits using the formula you have got in question A. (
3 points )
3B. The cost of the personnel department at the Mumbai
Company has always been charged to the production
departments based upon number of employees. Recently,
opinions gathered from the department managers indicated
that the number of new hires might also be a predictor of
personnel costs to be assigned. Total personnel department
costs are €120.000.
Required:
Using the above data, prepare a report that contrasts the
different amounts of personnel department cost that would
be allocated to each of the production departments if the
cost driver used is
a. Number of employees; (3 points)
b. The number of new hires. (3 points)
c. Which cost estimation method is being used by Mumbai
Company? (1point)
In addition, below is the value of the fan’s inventory for Question 4 (5%)
both work-in-progress and finished goods ( in Rp) at the a. What are the costs-benefits of using standard costing? (3
beginning and the end of September 2012 points)
b. What happen if standard costing differ with actual
costing? (2 points)
Question 5 (20%)
Anton Cahyadi is an advertising consultant. Recently, he has
Required : been working with his accountant to develop a formal
Kindly form a Cost of Goods Sold Report for September accounting system. His accountant has suggested the use of
2012 ( Notes : For materials used, you need to separate a job order costing system to simplify costing procedures.
direct material from indirect materials) During September, Anton and his staff working on jobs for
the following companies :
Question 3 (15%)
3A. Katty Poni opened a re-bonding salon in a new shopping
mall. She had anticipated that the costs for the re-bonding
service would be primarily fixed, but she found that the re-
bonding costs increased with the number of visits. Costs for
this service over the past 12 months are as follows :
Job for PT Burangrang and PT Red Sky has been completed
and recognized as revenue, but not for PT Tarantula.
Material purchased for the month is Rp 70.000.000. Anton
is able to trace direct material to each job because most of
the cost associated with material related to photography
and duplicating. The accountant has told Anton that a
reasonable charge for overhead, based on previous
information is Rp 165.000 per direct labor hour. The normal
labor cost per hour is Rp 135.000. The Actual overhead for
the month is Rp 120.000.000.
Required:
Based on the above information:
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a. Prepare the journal entries related for PT Burangrang

(The ads for PT Burangrang has a budgeted material
purchased Rp 15.000.000; PT Burangrang consumed 5% of
the total actual MOH for the month. The company write off
any under/over allocated to COGS account).
b. Determine the total balance for WIP and Finished Good
for the month.
c. Calculate whether there is under/over allocated for the
company’s monthly overhead. The company write off any
under/over allocated to COGS account.
d. If Anton has been charging Rp 7.800.000, per ad
developed, what was his net income for the month?
e. Do you have any suggestion for Anton about the way he
bills his client for developing ads? (hints : analyzed the
probability for each job)
Question 6 (30%)
PT DMD manufactures monitor for laptops. Each monitor
passes through the assembly department and the testing
department. When the assembly department finishes work
on each monitor, it is immediately transferred to testing
department. As each unit is completed in testing
department, it is immediately transferred to Finished
Goods.
Other information:
 The process costing system at PT DMD has a single direct
cost category (direct material) and a single indirect cost
category (conversion cost).
 PT DMD uses the FIFO method of process costing for
assembly department, and weighted average method of
process costing for testing department.
In the assembly department, direct materials are added at
the beginning of the process. While in the testing
department, direct materials area added when the testing
department process is 85% complete.
 Conversion costs are added evenly both ni the assembly
department and in the testing department.
Required:
1. Compute the equivalent units for each cost category in
assembly department and testing department.
2. Explain the degree of completion of Direct Material used
in calculation of equivalent units as in no. 1 above.
3. Calculate the ending balance of Work in Process for both ANSWER
departments as per 31 October 2012. Question 1
4. Prepare journal entries for all October 2012 transactions a. Adi has an ethical responsibility to take some action in
affecting Work in Process – Assembly and Work in Process – the matter of PT Godong Ijo and the dumping of toxic
Testing. because it involves some values according to IMA
5. Calculate the unit cost of the product (monitor for Statement of Ethical Professional Practice such as :
laptops).
 Competence
Adi was selected as an assistant controller because of his
past experience in the chemical processing field which
means he has some competence in this subject.
 Confidentially
The conversation between Adi and the plant supervisor
should be keep confidential.
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 Integrity
It involves Adi’s integrity to perform duties ethically
especially when Adi was suggested to ignore this issue by
the plant supervisor.
 Credibility
Adi and others PT Godong Ijo members must provide
credible evidence that some management team were
involved in arranging for the dumping.
b. Adi’s alternative courses of action analysis according to
IMA Statement of Ethical Professional Practice :
 Seek he
t advice of his superior is appropriate except when
it appears that the superior is involved. In this case, Adi
action is not appropriate because Adi was unable to
determine whether his superior was involved.
 Release information to newspapers is clearly an
inappropriate. Adi must keep the information confidential QUESTION 3
unless he can prove some credible evidences.
 Discuss with outside member is inappropriate because Adi
must keep the information confidential. It is better for Adi
to discuss the issue with the next level supervisor, such as
the CEO.
c. The steps Adi should take :
 Discuss the issue with the next level supervisor, for
example CEO and audit committee.
 Clarify relevant ethical issues by initiating a confidential
discussion with an IMA ethics Counselor or other impartial
advisor.
 Consult his own attorney as to legal obligations and tights
concerning the ethical conflict.
Question 2
PT Segar Abadi
Cost of Goods Sold Report
For the period ended September 31, 2012 ( in Rp )
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c. Mumbai Company should use the number of employees Labor hours PT Red Sky = 28.350.000/135.000 = 210 hours
as cost driver to estimate the cost because the number of Labor hours PT Tarantula = 60.750.000/135.000 = 450 hours
employees is more economic plausibility to the cost than Total labor hours = 700 hours
the number of new hires. MOH allocated = 700 x Rp 165.000 = Rp 115.500.000
Under allocated indirect cost = Rp 120.000.000 –
Question 4 115.500.000 = Rp 4.500.000
a. The cost benefit of standard costing system:
 Helps managers toocus f on important issues Journal entries:
If costs remain standards, Managers can focus on other
issues. When costs fall significantly outside the standards,
managers are alerted that there may be problems requiring
attention.
 Can promote economy and efficiency d. Anton income = 15 x 7.800.000 = Rp 117.000.000
Standard costing provide benchmarks that individuals can COGS PT Red Sky = 24.300.000 + 28.350.000 + 34.650.000 ->
use to judge their own performance. allocated (210x165000)
 Can simplify bookkeeping = 52.650.000 + 36.272.727
Instead of recording actual costs for each job, the standard = Rp 88.922.727 87.300.000
costs for materials, labor, and overhead can be charged to COGS PT Burangrang = 25.500.000
jobs. Anton Net income = 117.000.000 – 87.300.000 –
 Fit naturally inan integrated system of responsibility 25.500.000= Rp 4.200.000
accounting
The standards establish what cost should be, who should e. Anton should consider time used to produce ads in billing
responsible for them, and what actual costs are under his customer. Time consumed job should be more expensive
control. than others.
b. After all of the variances has been calculated, they need Question 6 , 1. Equivalent Unit
to be closed. If the total amount of variances is not material,
then, those variances can be closed to COGS account.
However, if those total variances are big, then the variances
should be divided proportionately to WIP inventory,
finished goods inventory, and COGS accounts. How to
report the variances in the balance sheet and income
statement is the same as if company makes the journal
using normal costing.
Question 5
a. Journal Entries for PT Burangrang
B. Total WIP Balance = Rp 28.800.000 + 60.750.000 +

((60750000/135000)x165000) = Rp 163.800.000
Total Finished Goods = 0 (there is no ending finished goods
because all of the finished goods have been sold)
c. Labor hours PT Burangrang = 40 hours
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2. Degree of Completion of Direct Material

In both Assembly and Testing Department, Degree of
completion of Direct material is 100% because the materials
are added at to the process one time, whether it is on the
beginning of the process or when the process is 85%
complete.
3. Ending Balance of WIP
5. Unit cost product = 54.485.063/ 53.000 = $ 1028
UAS SEMESTER GANJIL 2012/2015

AKUNTANSI BIAYA
CLOSED BOOK
.
QUESTION 1: PROCESS COSTING WITH SPOILAGE (20%)
The good management of spoilage, scrap and rework is very
important to be done in an era where companies are
required to always take care of the interests of business and
the environment. You are required to explain the things
that need to be done by a manager nowadays so that the
interests of business and the environment can be
maintained.
Explain :
a. What is the so-called a good management of scrap,
spoilage and rework ? (hint : you are required also to
explain the difference between normal and abnormal
spoilage management) ( 5 % ).
b. Conventional management accounting systems that exist
today do not easily provide information regarding the
calculation of the environmental cost so that the business
and environment can be maintained. Explain ( 5 % ).
c. What are the things that need to be modified in the
conventional management accounting systems that exist
today so that information regarding the calculation of
environmental costs can be harmonized with the calculation
of the cost of scrap , spoilage and rework so that the
information could be easily provided and available ( 5 % ) .
d. You are faced with production processes that result in
significant scrap value. Describe the things that need to be
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done by the company in order to manage scrap so that Required:

production efficiency can be achieved? ( 5 % ) . 1. Allocate two support departments` cost using the
following method:
QUESTION 2: JOINT COST (20%) a. Direct method
Morgan Industries is a manufacturer of chemicals for b. Step down method
various purposes. One operation produces XXL, a chemical c. Reciprocal (simultaneous) method
used in swimming pools; YYL, a chemical used in pesticides;
and ZZL, a by product that is sold to fertilizer manufacturers. 2. Supposed that during fourth quarter 2013, man-hours for
The company uses net realizable value method to allocate providing tax and accounting services respectively are
joint costs. The by product is inventoried at its market value 16,000 and 20,000 man-hours. Compute overhead
less its disposal cost, and this value is used to reduce the allocation rate per man-hour for Tax Services (TS) and
joint product cost before allocation to the main products. Accounting Services (AS) departments under direct method,
Data are presented below. During the period, the total joint step down method and reciprocal (simultaneous) method
costs are $ 3,404,000. that you have already calculated based on requirement (1).
Which method do you prefer? Comment your results.
QUESTION 4: INVENTORY MANAGEMENT (20%)
A. The SA Furniture company produces a specialty wood
furniture product, and has the following information
available concerning its inventory items:
Relevant ordering costs per purchase order $20
Relevant carrying costs per year:
Required annual return on investment 10%
Required other carrying costs per year $1.50
Annual demand 12,000 packages per year.
Purchase price per package $15
Purchase-order lead time 6 days
Required Required:
1. Determine the allocation of joint cost for the period. 1. What is the economic order quantity?
2. Compute the cost assigned to the finished goods 2. What is the reorder point?
inventories for XXL, YYL, and ZZL. 3. Assume that there is possibility of 0.2 that the demand
3. The company has an opportunity to sell YYL at the split during purchase-order lead time increase by 50 units. SA is
off point for $3.8 per gallon. Give your argument whether considering to maintain safety stock of 20 units or 50 units
the company should sell YYL at the split off point or to cover the increase in demand. If the stockout cost is $0.5
continue to process this product further. per unit, which level of safety stock that will cost SA lower?
QUESTION 3: SUPPORT DEPARTMENT COST ALLOCATION B. ABC Products manufactures microfilm cameras. For
(20%) October, there were no beginning inventories of direct
materials and no beginning or ending work in process.
Smallville provides tax and accounting services to small and Conversion costs is the only indirect manufacturing cost
medium size companies. Smallville has two support category currently used. The data of November 2013are as
departments – Administrative Services (AS) and Information follow:
System (IS), and two operating departments – Tax Services
(TS) and Accounting Services (AS). For the last quarter of
2013, Smallville cost records indicate the following:
Required:
Journalize entry(ies) that would occur if the only trigger
point is the production of finished units
C. Explain both qualitative and quantitative performance
measures that can be applied to a company that adopt Just-
in-Time!
QUESTION 5: ACTIVITY BASED COSTING (20%)
At Deutschland Electronics, product lines are charged for
call center support costs based on sales revenue. Last year's
summary of call center operations revealed the following:
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its incurrence. It will hopefuly result in different pricing of

products, which will result in a re-evaluation of the profit
margin, phasing-out certain products that has to much
environmental cost and finally lead to re-designing process
or products in order to reduce environmental cost.
 Taking into account the environmental costs when
calculating the profitability indicators like Net Present Value
(NPV), Payback Periods (PBP) and Internal Rate Ration (IRR).
d. According to a survey, wasted materials are accounted to
contribute 40% to 90% of environmental costs. In order to
reduce this scrap, management has to re-evaluate the
making process of its product, then re-design a better way
Deutschland Electronics currently allocates call center to produce the product.
support costs using a rate of 0.5% of sales revenue.
Required: Question 2 – Joint Cost (20%)
a. Compute the amount of call center support costs 1. Since the joint product cost to be allocated is to be
allocated to each product line under the current system. reduced by the byproduct value, the joint product cost
b. Assume Deutschland decides to use the average call allocated is $ 3,404,000 – $(1.4 – 0.1) x 340,000 = $
length for information to assign last year's support costs. 2,962,000
Does this allocation method seem more appropriate than
percentage of sales? Why or why not? Panel A: Allocation of Joint Costs Using Net Realizable Value
c. Assume Deutschland decides to use the numbers of calls
for information and for warranties to assign last year's
support costs of $65,000. Compute the amount of call
center support costs assigned to each product line under
this revised ABC system.
d. Deutschland Electronics assigns bonuses based on
departmental profits. How might the Specialty Products
manager try to obtain higher profits for next year if support
costs are assigned based on the average call length for
information?
e. Discuss the barriers for implementing ABC for this call
center.
Question 1 – Process Costing With Spoilage 2. Cost assigned to the finished goods inventories:
a. One is said to have a good management of scrap, spoilage XXL: $ 2.3931 x (1,400,000 – 1,300,000) = $ 239,300
and rework when it can minimize the level of scrap, spoilage YYL: $ 4.27 x (700,000 – 650,000) = $ 213,500
and rework during production, because rework can cause a ZZL: $ 1.3 x (340,000 – 300,000) = $ 52,000
substantial production delays and higher-than-normal levels
of spoilage and scrap can have a significant negative effect 3. Further processing YYL
on a company’s profit. A good management of spoilage
highlights the difference between normal spoilage and
abnormal spoilage. Normal spoilage is spoilage inherent in a
particular production process, and is inevitable even under
an efficient production. The cost of normal spoilage is
included as a component of the cost of good units
manufactured. Abnormal spoilage, on the other hand, is
spoilage that is not inherent in a particular production Increase in operating income from processing YYL $ 608,000
process and would not arise under efficient operating If the company sell YYL at the splitoff point, the company
conditions. Since, it coud have been avoided under efficient will lose $608,000 from its income statement. Thus, it is
production, the cost of abnormal spoilage appears at the better for the company to continue processing YYL.
income statement as a separate item with COGS.
Question 3 – Support Department Cost Allocation
b. The conventional management accounting techniques 1. A. Direct method -> This method allocates all support
can distort and misrepresent environmental issues, leading department’s cost to only
to manager making decisions that are bad for businesses operating departments.
and bad for the environment. This due to the tendency to
attribute many of the environmental cost to general B. Step down method -> This method allocates support-
overhead accouts with the result that they are hidden from department’s cost to other support department and to
management. Thus, management is often unaware of the operating departments. With step down method, the
extent of environmental costs and cannot identify department wtih the most percentage of service allocated
opportunities for cost saving. to other department is allocated first. In this case, IT
Department provides 25% of its service to AS department,
c. This proposed accounting system will hopefuly make a while the AS Department only provides 20% of its service to
better calculation of environmental cost. the IT Department. Thus, IT Department is allocated first
 Converts many environmental overhead costs into direct
costs and allocates them to the product that responsible for
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c. Reciprocal method -> Allocates suppord-department’s Question 4 – Inventory Management (20%)

cost to operating departments by fully recognizing the A. )1. Economic Order Quantity = (2DP/C)0.5
mutual services provided among all support department. D = Annual demand = 12,000
With this method, one can simply use a linear equations. P = Ordering cost = $20
C = Carrying cost = 10% x $15 + $1.5 = $3
Direct method VS Step down method VS Reciprocal method EOD = (2 x 12,000 x 20 / 3)0.5 = 400
The SA Furniture Companay should order 400 packages in
AS = 1.200.000 + 25/100 x IT (1) every order it made.
IT = 4.800.000 + 20/100 x AS (2) 2. ) Reorder point = Number of units sold per period time x
Purchase lead time = 12,000 / 360 x 6 = 200
Substitute the equation from (1) and (2) 3. ) All the alternatives have the same total cost, thus, it is
AS = 1.200.000 + 0,25 ( 4.800.000 + 0,2 AS) = 1.200.000 + indifference for SA Furniture Company to have 0, 20, or 50
1.200.000 + 0,05 AS safety stock.
0,95 AS = 2.400.000
AS = 2.526.315,79
IT = 4.800.000 + 0,2 x 2.526.315,79
IT = 5.305.263,21
Allocate the complete reciprocated costs of each support
department to all other departments (both support
departments and operating departments) on the basis of
the usage percentages
B.
C. In order to measure the performance of Just In Time, one

can use quantitative and qualitative measure. With
quantitative measure, one can use financial ratio such as
inventory turnover ratio, number of days of inventory, units
produced per hour, manufacturing cycle time, etc to
measure what the adoption of JIT has done in one’s
company.
Question 5 – Activity Based Costing
a.
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b. The allocation method using the average call length for

information seems more appropriate to adopt compared to
the current system. It is more appropriate since average call
length for information seems more like a cost driver than
sales revenue is. The use of cost driver as the cost-allocation
base will result in a more accurate cost allocation, although
whether average call length for information is the cost
driver for the indirect-cost pool or not need further
evaluation.
c.
d. To obtain a higher profit, specialty products department

must first reduce its cost, in this case, call center support
costs. In order to reduce the cost, the department can
evaluate what question do the customers usually ask that
makes the average call length for information is 3 minutes.
Now that department has the frequently asked question,
the department can make a page on its website to answer
the frequently asked question. Moreover, the department
can print a clearer instruction on the product’s manual
book.
e. Activity-based costing (ABC) emphasizes that activities
consume companies' resources and driver costs (rather than
volume alone driving costs). As a result, the companies
benefiting the most from ABC would be companies with a
significant amount of overhead pertaining to a diversity of
activities in providing goods (or services) to customers
whose demands also vary. In other words, if one company
has little overhead cost and manufactures almost identical
products requiring similar attention for each product, the
need for ABC probably isn't there, thus implementing ABC
will only burden more on ABC’s measurement and
implementation cost.
PE1

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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

Cost Object Examples at BMW Cost Behavior

Basic Cost Terminology Cost Behavior Summarized

–Unit costs that include fixed costs should always

Other Cost Concepts

Accounting Distinction Between Costs

Multiple-Step Income Statement

Cost of Goods Manufactured

Other Cost Considerations 1. Prepare an income statement with a separate

Linear Cost Functions Illustrated

Bridging Accounting & Statistical Terminology

Linear Cost Function

1.Choose the dependent variable (the cost to be predicted)

Cause & Effect as it relates toCost Drivers

Alternative Regression Model Plot

Sample Incremental Unit-Time Model

Types of Learning Curves

Predicting Costs Using Alternative Time Learning Models

Sample Job Cost Document

Costing Approaches Summarized

Seven-step Job Costing

Accounting for Overhead

EXERCISE 7. Balance, Work-in-Process Control, December 31, 2011

Additional information follows: Letters alongside entries in T-accounts correspond to letters

–Units of abnormal spoilage are calculated and recorded in

Byproducts –outputs of a joint production process that have

Joint Process Overview

Sales Value at Splitoff Method Sales Value at Splitoff Illustration

Joint Cost Illustration Overview

Net Realizable Value Method

Sell-or-Process Further Decisions

Byproducts Illustration Overview Comparative Income Statements for Accounting for

Physical measure method

1. Allocate the joint costs of $100,000 between caustic

3b. Gross-margin percentage of PVC

4. Sale of chlorine versus processing into PVC

Note that caustic soda is sold as is while chlorine, despite

Inventory Management in Retail Organizations

4.Stockout Costs Ordering & Carrying Costs Illustrated

D = Demand in units for specified period

Estimating Inventory-Related Relevant Costs

JIT Purchasing and Supply-Chain Analysis

Six-Function Value Chain

Traditional Life Cycle approach may not yield the costs

Customer Revenues Customer Profitability Analysis Illustrated (Customer

Customer Profitability Analysis Illustrated (Customer

Flexible-Budget and Sales-Volume Variances Illustrated

Customer Profitability Analysis Illustrated (Retail Channel

Market-Share and Market-Size Variances

Budgeted sales-mix percentage:

Budgeted contribution margin per unit:

2. Actual market share = 84,000 ÷ 700,000 = 0.12, or 12% CHAPTER 15

Allocating Costs of a Supporting Department to Operating

Direct Allocation Method Illustrated Step-Down Allocation Method Illustrated

Direct Allocation Method Illustrated, cont.

Step-Down Allocation Method Illustrated

Reciprocal Method Individual costs are added together and allocation

Reciprocal Allocation Method (Linear Equations)

Choosing Between Methods

Cost Allocations and Contracting

Computer Horizons budgets the following amounts for its

Alternative Methods of Allocating Corporate Support-

Plastim: Simple & ABC Compared