Professional Documents
Culture Documents
Normal
Costing
Costing
Direct-cost rates
Actual rates
Actual rates
Indirect-cost rates
Actual rates
Budgeted rates
Each costing method uses the actual quantity of the direct-cost input and
the actual quantity of the cost-allocation base.
Question 5.8
A company might use budgeted costs rather than actual costs to compute
direct labour rates because it may be difficult to trace direct labour costs
to jobs as they are completed (for example, because bonuses are only
known at the end of the year).
Question 5.9
Industries using process costing in their manufacturing area include
chemical processing, oil refining, pharmaceuticals, plastics, brick and tile
manufacturing, semiconductor chips, beverages, and breakfast cereals.
Question 5.10
Equivalent units is a derived amount of output units that takes the quantity
of each input (factor of production) in units completed or in incomplete
units in work in process, and converts the quantity of input into the amount
of completed output units that could be made with that quantity of input.
Each equivalent unit is comprised of the physical quantities of direct
materials or conversion costs inputs necessary to produce output of one
fully completed unit. Equivalent unit measures are necessary since all
physical units are not completed to the same extent at the same time.
l.
Job costing
b. Process costing
m.
Process costing
c. Job costing
n.
Job costing
d. Process costing
o.
Job costing
e. Job costing
p.
Job costing
f. Process costing
q.
Job costing
g. Job costing
r.
Process costing
s.
Job costing
i. Process costing
t.
Process costing
j. Process costing
u.
Job costing
k. Job costing
cost rate
2.
(a)
Sunrise
Sunset
Model
Model
Normal costing
Direct costs
Direct materials
Direct labour
A$106 450.00
A$127 604.00
36 276.00
41 410.00
142 726.00
169 014.00
32 625.00
36 612.50
3 326.56
3 987.63
A$178 677.56
A$209 614.13
Indirect costs
Building support (A$36.25 x 900; A$36.25 x 1010)
Logistics (A$0.03125 A$106 450 ; A$0.03125 x
$127 604)
Total costs
(b)
Actual costing
Direct costs
Direct materials
Direct labour
A$106 450.00
A$127 604.00
36 276.00
41 410.00
142 726.00
169 014.00
39 937.50
44 818.75
3 166.89
3 796.22
A$185 830.39
A$217 628.97
Indirect costs
Building support (A$44.375 x 900; A$44.375 x
1010)
Logistics (A$0.02975 A$106 450; A$0.02975
A$127 604)
Total costs
3.
Normal costing enables Stegline to report a job cost as soon as the job
is completed, assuming that both the direct materials and direct labour costs
are known at the time of use. Once the 900 direct labour-hours are known for
the Sunrise Model (June 2014), Stegline can compute the A$178 677.56 cost
figure using normal costing. Anderson can use this information to manage the
costs of the Sunrise Model job as well as to bid on similar jobs later in the
year. In contrast, Stegline has to wait until the December 2014 year-end to
compute the A$185 830.39 cost of the Sunrise Model using actual costing.
Exercise 5.22
1)
1.
= 8,520,000/ 240000 =
Exercise 5-25
normal costing
1. Actual direct cost rate for professional labour = $69 per professional
labour-hour
Actual indirect cost rate = 744,000/15,000 = $49.60 per professional
labour-hour
= 992,000/15,500 = $64 per professional labour-hour
Budgeted indirect cost rate =852,500/15,500
professional labour-hour
Direct-Cost Rate
$55 per
(a)
(b)
(c)
Actual
Normal
Variation of
Costing
Costing
Normal Costing
$69
$69
$64
(Actual
(Actual rate)
(Budgeted rate)
$49.60
$55
$55
(Actual
(Budgeted rate)
(Budgeted rate)
(a)
(b)
(c)
Actual
Normal
Variation of
Costing
Costing
Normal Costing
$69 120 =
$69 120 = $
$64 120 = $
$ 8,280
8,280
7,680
rate)
Indirect-Cost Rate
rate)
2.
Direct Costs
Indirect Costs
Total Job Costs
49.60 120
$55 120 =
= 5,952
6,600
$14,232
$14,880
55 120 =
6,600
$14,280
All three costing systems use the actual professional labour time of 120
hours. The budgeted 110 hours for the Pierre Enterprises audit job is not
used in job costing. However, Chirac may have used the 110 hour number in
bidding for the audit.
The actual costing figure of $14,232 is less than the normal costing figure of
$14,880 because the actual indirect-cost rate ($49.60) is less than the
budgeted indirect-cost rate ($55). The normal costing figure of $14,880 is
more than the variation of normal costing (based on budgeted rates for
direct costs) figure of $14,280, because the actual direct-cost rate ($69) is
more than the budgeted direct-cost rate ($64).
Although not required, the following overview diagram summarises Chiracs
job-costing system.
INDIRECT
COST
POOL
Audit
Support
COST
ALLOCATION
BASE
Professional
Labour-Hours
COST OBJECT:
JOB FOR
AUDITING
PIERRE
& CO.
Indirect Costs
Direct Costs
DIRECT
COST
Professional
Labour
Exercise 5.26
Job order costing: actual, normal, and variation
from normal costing
1.
a. Actual costing
Direct cost rate = Actual professional labour costs Actual professional
labour-hours
= $4893000 23,300 hours
= $210 per professional-hour
Indirect cost rate = Actual support costs Actual professional labour-hours
= $2,400,000 22,000 hours
= $103.00 per professional-hour
b. Normal costing
Budgeted professional hours = Budgeted hours per lawyer Number of
lawyers
= 2650 8 = 21,200 hours
Direct cost rate
labour-hours
= $4,893,000 23,300 hours
= $210 per professional-hour
$84,000
41,200
$125,200
Normal Costing
Direct costs 400 hours $210 per hour
Indirect costs 400 hours $94.34 per hour
Total costs
$84,000
37,736
$121,736
$80,000
37,736
Total costs
$117,736
INDIRECT
COST
POOL
COST
ALLOCATION
BASE
COST OBJECT:
JOB FOR
CLIENT
DIRECT
COST
Legal
Support
Professional
Labour-Hours
Indirect Costs
Direct Costs
}
Professional
Labour
2.
Budgeted professional
=
labour - hour direct cost rate
170000/1650
Note that the budgeted professional labour-hour direct-cost rate can also
be calculated by dividing total budgeted professional labour costs of
$4,250,000 ($170,000 per professional 25 professionals) by total budgeted
professional labour-hours of 41,250 (1,650 hours per professional 25
professionals), $4,250,000 41,250 = $103.03 per professional labour-hour.
3.
Budgeted indirect
cost rate
2,350,000/41,250
4.
Direct costs:
Professional labour, A$103.0303 120;
A$103.0303 195
Indirect costs:
Legal support,
A$56.9697
120;
A$56.9697 195
Blighton
Judy
A$ 20 090.91
A$ 12 363.64
6 836.36
A$19 200.00
11 109.09
A$31 200.00
General
Support
Secretarial
Support
Professional
Labour-Hours
Partner
Labour-Hours
COST OBJECT:
JOB FOR
CLIENT
DIRECT
COST
Indirect Costs
Direct Costs
Professional
Professional
Associate Labour
Partner Labour
1.
Professional
Professional
A$ 345 000
A$127 000
1 650
1 650
A$209.09 per
houra
A$76.9697 per
hourb
A$345 000 5
1650 5
= A$209.09
A$127 000 20
1650 20
= A$76.9697
2.
Secretarial
Support
Support
A$600 000
41 250 hours
8 250 hours
General
3.
Blighton
Judy
Direct costs:
Professional partners,
A$209.09 60; A$209.09 30
Professional associates,
A$76.9697 40; A$76.9697
120
A$12 545.40
A$6 272.70
3 078.79
9 236.36
A$ 15 624.19
A$ 15 509.06
4 606.06
6 909.09
4 363.63
2 181.82
8 969.69
9 090.91
A$24 593.88
A$24 599.97
Direct costs
Indirect costs:
General support, A$46.0606
100; A$46.0606 150
Secretarial support,
A$72.7272 60; A$72.7272
30
Indirect costs
Total costs
4.
Blighton
Judy
A$19 200.00
A$31 200.00
24 593.88
24 599.97
A$ 5 393.88
Undercosted
A$
6 600.03
Overcosted
The Blighton and Judy jobs differ in their use of resources. The Blighton job
has a mix of 60% partners and 40% associates, while Judy has a mix of 20%
partners and 80% associates. Thus, the Blighton job is a relatively high user of
the more costly partner related resources (both direct partner costs and
indirect partner secretarial support). The refined costing system in Problem 539 increases the reported cost the Blighton job by 28.09% (from A$19 200 to
A$24 593.88). On the other hand, the Judy job was overcosted by the single
10
overhead cost pool (A$31 200 versus A$24 599, a reduction of 21.15%) for the
same reasons. Note the implication of this for competitiveness the firm is
likely to attract more customers like Blighton (presumably more complex,
requiring the partners time) and lose customers like Judy that are more
simple.
11