Beruflich Dokumente
Kultur Dokumente
Objective 1
Develop and use departmental
overhead rates to allocate
indirect costs
Predetermined MOH
rate =
overhead costs
Total estimated amount of the
allocation base
$1,000,000
= $16 per DL
62,500 DL hours
hour
Departmental Overhead
Rates
Separate predetermined
manufacturing overhead rates for
each department
Departmental Overhead
Rates
When to use:
Departments incur different amounts
and types
of MOH
Different jobs or products use the
department resources to a different
extent
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11
S4-3Compute Departmental
Overhead Rates
1. What is Kettles plantwide overhead rate?
Total estimated manufacturing
overhead costs
Total estimated amount of the
allocation base
$3,315,000 manufacturing overhead
17,000 machine hours
= $195 per machine hour
13
S4-3 (cont.)
2. Calculate the departmental
overhead rates for Kettles three
production lines. Round all answers
to the nearest cent.Machine Overhead
Departme Overhead
nt
Potato
chips
Corn chips
Cheese
puffs
Cost
Hours
Rate
$2,014,000
10,600 MH
$190.00
$672,000
3,000 MH
$224.00
$ 629,000
3,400 MH
$185.00
14
S4-3 (cont.)
3. Which products had been overcosted by the
plantwide rate? Which products had been
undercosted by the plantwide rate?
15
Objective 2
Develop and use activity-based
costing (ABC) to allocate
indirect costs
16
Activity-Based Costing
Allocates indirect costs to production
Focuses on activities and costs of
activities
Separate allocation rate for each
activity
17
18
19
20
21
Cost drivers:
Material purchasing
# of purchase orders
Material handling
# of parts
# of inspections
Photocopying
# of pages copied
Warranty service
# of service calls
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23
S4-6
Estimated
Total
Manufacturing Estimated
Overhead
Total Usage
Activity Cost
Costs
of Cost Driver Allocation Rate
Activity
(A)
(B)
(A B)
Machine setup $ 159,500 2,900 set-ups $ 55 per setup
Machining
$ 720,000
4,800
$ 150 per
machine
machine hour
hours
Quality control $ 264,000
4,400 tests $ 60 per QC
run
test
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Manufacturing
Costs
$1,250
412
890
$2,552
25
Cost Hierarchy
26
27
Product-level
Batch-level
Product-level
Facility-level
Unit-level
Unit-level
28
S4-7 (cont.)
g. CEO salary
h. Engineering costs for new
product
i. Order processing
j. Depreciation on factory
k. Direct labor
l. Shipment of an order to a
customer
Facility-level
Product-level
Batch-level
Facility-level
Unit-level
Batch-level
29
Objective 3
Understand the benefits and
limitations of ABC/ABM systems
30
31
32
Cutting Costs
Analyze costs in value chain
Value-added activities
Non-value-added activities
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34
35
36
37
38
Objective 4
Describe lean operations
39
Traditional Production
Systems
Keep large inventories on hand
Problems:
Storage cost
Hide quality
Bottlenecks and obsolete products
40
Lean Thinking
Philosophy and a business strategy
Primary goal: Eliminate waste and
cost
Focus of JIT
Purchase raw materials just in time for
production
Finish goods just in time for delivery
Copyright 2015 Pearson Education, Inc.
41
Lean Production
Common characteristics of lean production
Value stream mapping
Production occurs in self-contained cells
Broad employee roles
5S workplace organization
Point of use storage
Continuous flow
Pull system
Shorter manufacturing cycle times
Reduced setup times
Smaller batches
Emphasis on quality
Supply-chain management
Backflush costing
Copyright 2015 Pearson Education, Inc.
42
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44
Objective 5
Describe and use the cost of
quality framework
45
46
47
48
Appraisal costs
Review work continuously
Inspect before releasing
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49
External
Failure
Costs
50
51
52
E4-27A
Prevention costs
Training employees in TQM
Training suppliers in TQM
Identifying preferred suppliers who
commit to
on-time delivery of perfect quality
materials
53
E4-27A (cont.)
Appraisal costs
Strength testing one item from each
batch
of panels
Avoid inspection of raw materials
54
E4-27 (cont.)
External failure costs
Avoid lost profits from lost sales due to
disappointed customers
Avoid warranty costs
55
E4-27A (cont.)
$ 23,000
34,000
51,000
62,000
(49,000)
56
E4-34A (cont.)
Quality report (continued from prior slide):
Internal failure costs:
Savings on rework and spoilage
External failure costs:
Savings on formerly lost profits
Savings on warranty costs
Copyright 2015 Pearson Education, Inc.
$
(66,00
0)
(85,000)
(25,00
0)57
End of Chapter 4
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