PRODUCT COST BY INDUSTRY
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PRODUCT COST BY INDUSTRYPRODUCT COST BY INDUSTRY
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Aero-space
Compu-ters
MotorVehicles
Direct Materials
Direct Labor
Manufacturing O/ H
Overview of Costing for Manufacturing Companies
Manufacturing Overhead
Machine Hours
DirectLabor
Direct Materials
IndirectCost Pool
CostAllocationBase
CostObject
DirectCosts
Product Cost
Five Step Approach to Job Costing1 Identify the cost object.
2 Identify the direct costs for the job.
3 Identify the indirect cost pools associated with the job.
4 Select the cost allocation base for each indirect cost pool.
5 Calculate the rate per unit of the allocation base to allocate indirect costs.
Calculation of Overhead Rates
Total Quantity of the CostAllocation Base
Total Costs in the Cost Pool
Overhead Rate =
Activity-Based CostingActivity-Based Costing
The key assumption in Activity-Based Costing is that overhead costs are caused by a variety of activities, and that different products utilize these activities in a non-homogeneous fashion. ABC attempts to select as the allocation base the best cost driver for each overhead cost item; i.e., the cost driver that best captures the cause and effect relation-ship between products and overhead costs.
Overview of Costing for Manufacturing Companies
Manufacturing Overhead
Machine Hours
DirectLabor
Direct Materials
IndirectCost Pool
CostAllocationBase
CostObject
DirectCosts
Product Cost
Overview of Costing Under ABC
INDIRECT COSTSDIRECT COSTS
D.M. D.L. WARRANTY
# OF PARTS MACH. HRS D.L. HR.S
PURCH-ASING
PERSONNEL MACHINE SHOP
INDIRECTCOST POOLS
COST ALLO-CATION BASES
COSTOBJECT
COSTTRACING
DIRECTCOSTS
Cost Allocation Bases used for Cost Allocation Bases used for Manufacturing OverheadManufacturing Overhead
U.S. ManufacturersU.S. Manufacturers
31%
31%
12%
4% 5% 17%
Direct labor-hr.sDirect labor-$Machine Hr.sDirect Material $Units of ProductionOther
Cost Allocation Bases used for Cost Allocation Bases used for Manufacturing OverheadManufacturing Overhead Japanese Manufacturers Japanese Manufacturers
507
12
11
1621
Direct Labor-hr.s
Direct Labor-$
Machine-hr.s
Direct Materials $
Units of Production
Prime cost (%)
Cost Allocation Bases used for Cost Allocation Bases used for Manufacturing OverheadManufacturing Overhead
U.K. ManufacturersU.K. Manufacturers
31
29
27
17
22 10
Direct labor-hr.s
Direct labor-$
Machine hr.s
Direct materials $
Units of production
Prime cost (%)
Dialysis Clinic, Inc.Two types of Dialysis:
Hemodialysis (HD) Peritoneal dialysis (PD)
Equipment intensive, in-clinic treatment
3 treatments per week
102 patients
$1.9 million in revenues
self-administered, in-home treatment
Daily treatment
62 patients
$1.1 million in revenues
Dialysis Clinic, Inc.
Cost Category
Total Cost
Alloc-ation Base
Units of Allocation Base
HD PD Total
Summary of Costs and Identification of Cost Drivers:
Standard Supplies
$664,900
Not applicable: these are direct costs
Episodic Supplies
$310,695
Dialysis Clinic, Inc.
Cost Pool
Total Cost
Allocation Base
Units of Allocation Base
HD PD Total
Summary of Costs and Identification of Cost Drivers:
Nursing RNsLPNsAdmin.Tech.s Total
$239,120 404,064 115,168 124,928
$883,280
RN FTEsLPN FTEstreatmentsdialyzer treatments
515
14,34314,343
24
20,6240
719
34,96714,343
Dialysis Clinic, Inc.
Cost Pool
Total Cost
Alloca-tion Base
Units of Allocation Base
HD PD Total
Summary of Costs and Identification of Cost Drivers:
General facilityAdminRecordsUtilities Total
$233,226 354,682 157,219 40,698
$785,825
Sq ftpatientstreatmtsKilowatts
18,900102
14,343563,295
11,10062
20,62499,405
30,000164
34,967662,700
Dialysis Clinic, Inc.
Cost Pool
Total Cost
Alloc-ation Base
Units of Allocation Base
HD PD Total
Summary of Costs and Identification of Cost Drivers:
Dur-able equip-ment
137,046 Nursing Svc Cost
$661,966 $221,314 $883,280
Dialysis Clinic, Inc.
Calculation of Overhead Rates:
Cost Pool Total cost Total Units of AllocationBase
Overhead Rate
NursingRNsLPNsAdminTechnicians Total
$239,120404,064115,168124,928
$883,280
719
34,96714,343
$34,160 per RN FTE$21,267 per LPN FTE$3.29 per treatment$8.71 per dialyzer treatment
Dialysis Clinic, Inc.
Calculation of Overhead Rates:
Cost Pool Total cost Total Units of AllocationBase
Overhead Rate
GeneralFacility AdminRecordsUtilities Total
$233,226354,682157,219
40,698$785,825
30,000164
34,967662,700
$7.774 per sq ft$2,163 per patient$4.496 per treatmt$0.0614 per kilowatt
Dialysis Clinic, Inc.
Calculation of Overhead Rates:
Cost Pool Total cost Total Units of AllocationBase
Overhead Rate
Durable equipment
$137,046 $883,280 $0.15516 per nursing service dollar
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost Category
O/H Rate
HDUnits
HDCost
PDUnits
PDCost
Standard supplies
Episodic Supplies
Direct cost
Direct cost
$512,619
98,680
$152,281
$212,015
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost Pool
O/H Rate
HDUnits
HDCost
PDUnits
PDCost
NursingRNsLPNsAdminTech.s Total
34,16021,267
3.298.71
5 FTEs 15 FTEs 14,343* 14,343*
* treatments
$170,800318,998
47,240124,928
$661,966
24
20,6240
$68,32085,06667,928
0221,314
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost Pool
O/H Rate
HDUnits
HDCost
PDUnits
PDCost
generalfacilityadminrecordsutilities Total
7.7742,1644.496.0614
18,900 sq ft102 patient
14,343563,295
$146,933220,595
64,48934,593
$466,610
11,10062
20,62499,405
$86,293134,087
92,7306,105
319,215
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost Pool
O/H Rate
HDUnits
HDCost
PDUnits
PDCost
durable equip-ment
$.15516 per
nursing dollar
661,966 $102,785 221,314 $34,261
Dialysis Clinic, Inc.
Summary of Costs:
Cost Category HD PD
Standard SuppliesEpisodic SuppliesNursing ServicesGeneral OverheadDurable equipment Total
$512,61998,680
661,966466,610102,785
$1,842,660
$152,281212,015221,314319,215
34,261$939,086
Dialysis Clinic, Inc.Summary of profitability:
HD PD
“Traditional” CostingRevenueDirect CostsIndirect Costs Net IncomeActivity-Based CostingRevenueDirect CostsIndirect Costs Net Income
$1,860,287611,299
1,389,347($140,359)
$1,860,287611,299
1,231,361$17,627
$1,146,488364,296416,804365,388
$1,146,488364,296574,790
$207,402
Dialysis Clinic, Inc.Summary of profitability:
HD PD
R.C.C. CostingRevenueDirect CostsIndirect Costs Net Income
$1,860,287611,299
1,117,463$131,525
$1,146,488364,296688,688
93,504
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