Workshop 3

Question 1

Name three reasons cost measurement and overhead allocation are relevant?

Answer 1

• Overhead: large portion of manufacturing costs
• External / internal reporting: timely performance tracking
• Decision making

Question 2

What is job-costing?

Answer 2

cost object is unit or multiple units of distinct product, service or object called a job
- Accumulates and assigns costs to a specific job

Question 3

What is process-costing?

Answer 3

cost object s masses of identical or similar units of a product / service
- Accumulates costs by process or department and then assigns them to a large number of nearly identical product units.
- Total aggregated costs per period / number of products produced per this period

Question 4

Name two ways in which overhead can be allocated?

Answer 4

1. Volume-based costing
2. Activity-based costing

Question 5

Name 2 characteristics of volume-based costing?

Answer 5

• One overhead cost pool
• Uses one volume based cost driver to allocate overhead costs

Question 6

Name three charateristics of activity-based costing?

Answer 6

• Splits overhead in several cost pools
   Identifies activities and allocates overhead to activity cost pools
• Uses several activity-based cost drivers (determines cost drivers for each activity)
• Each activity cost pool has its own cost driver

Question 7

Name two methods of cost measurement?

Answer 7

1. Actual costing
2. Normal costing

Question 8

Name two characteristics for actual costing?

Answer 8

• Actual costs for all product costs
• Allocation of overhead at end of a period

Question 9

How do you measure overhead rate and overhead costs in an actual costing cost measurement system?

Answer 9

- Overhead Rate = Actual Overhead / Actual total usage of cost driver
Overhead costs = Actual Overhead Rate * Actual usage for job X

Question 10

Name two characteristics of normal costing as cost measurement system?

Answer 10

• Actual costs for direct costs and predetermined costs for overhead
• Allocation of overhead throughout a period

Question 11

How do you calculate overhead rate and overhead costs in a normal costing cost measurement system?

Answer 11

 Overhead rate = Budgeted overhead / Budgeted total usage
 Overhead costs = Budgeted Overhead Rate * Actual usage for job X (as soon as finished)

Question 12

What happens in case of a difference between the allocated overhead and actual overhead?

Answer 12

In case of these deviations  Are they material?
 If not: Add to cost of goods sold
 If yes: How much assigned to cost of inventory how much of COGS