ACCT10003 Lecture 2: Lecture 2_online(2)

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sapphirekangaroo226

23 Aug 2017

School

University of Melbourne

Department

Accounting

Course

ACCT10003

Professor

Freeman

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Document Summary

Seminar 2: job costing: how much does it cost, learning objectives. To understand the nature of costing systems. To be able to distinguish between job costing and process costing. To distinguish actual costing from normal costing. To understand the purpose and design issues in both service and manufacturing contexts. To understand how the steps in the production process are tracked in a job costing system. To understand the alternative methods of disposing of under or over allocated overhead. Review questions: 3. 1, 3. 3, 3. 4, 3. 5, 3. 9. Product costing systems: the aim of a costing system is to report the organizational resources consumed by a particular cost object, costing system considerations: Cost accumulation is the collection of cost data in some organised way by means of an accounting system. Cost assignment is a general term that encompasses Tracing accumulated costs to a cost object and.

Related Questions

Managerial Accounting

Break-even analysis for management education. The dean of theGraduate School of Management at the University of California atDavis was considering whether offer a particular seminar forexecutives. The tuition was $650 per person. Variable costs, whichincluded meals, parking, and materials, were $80 per person.Certain costs of offering the seminar, including advertising theseminar, instructorsâ fees, room rent, and audiovisual equipmentrent, would not be affected by the number of people attending(within a ârelevant rangeâ). Such costs, which could be thought ofas step costs, amounted to $8000 for the seminar.

In addition to these costs a number of staff, including the deanof the school worked on the program. Althoug the salaries paid tothese staff were not affected by offerering the seminar, working onthe seminar took these people away from other duties thus creatingan opportunity cost estimated of $7,000 for this seminar.

Given this information, the school estimated the break-evenpoint to be ($8,000 + $7,000)/($650 - $80) = 26.3. If the schoolwanted to at least break even on this program it should offer theprogram only if it expected at least 27 students to attend. Write areport to the dean that evaluates the quality of this analysis. Inparticular focus on concerns about the accuracy of the data and thelimitations of cost volume profit analysis.

The executive education (EE) unit at the Business School ofCentral State University offers both open-enrollment (anyone cansign up) and custom (designed for a specific client) executiveeducation programs. CSU has just received an inquiry from aprospective client about its prices for leadership seminars. Theprospective client wants bids for three alternative activitylevels: (1) one seminar with 20 participants, (2) four seminarswith 20 participants each (80 participants total), or (3) eightseminars with 140 participants in total. EEâs cost analyst hasprovided the following differential cost estimates:


Setup costs for theentire job	$	530
Materials costs per participant(brochures, handouts, coffee, lunch, etc.)		120
Differential direct laborcosts:
One seminar	$	1,100
Four seminars		4,500
Eight seminars		8,100

In addition to the preceding differential costs, EE allocatesfixed costs to jobs on a direct-labor-cost basis, at a rate of 80percent of direct labor costs (excluding setup costs). For example,if direct labor costs are $100, EE would also charge the job $80for fixed costs. EE charges clients for its costs plus 20 percent.For the purpose of charging customers, costs equal the setup costsplus materials costs plus differential labor costs plus allocatedfixed costs. EE has enough excess capacity to handle this job withease.

Required:

a. Assume EE's bid equals the total cost,including fixed costs allocated to the job, plus the 20 percentmarkup on cost. What should EE bid for each of the three levels ofactivity?

b. Compute the differential cost (includingsetup costs) and the contribution to profit for each of the threelevels of activity. Note that fixed costs are not differentialcosts.

c. Assume the prospective client gives threeoptions. It is willing to accept either of EE's bids for theone-seminar or four-seminar activity levels, but the prospectiveclient will pay only 90 percent of the bid price for theeight-seminar package. EE's director responds, "We can't make moneyin this business by shaving our bids! Let's take the four-seminaroption because we make the most profit on it."

c-1. What would be the contribution to profitfor each of the three options?

c-2. Do you agree with the EE's director?

	Disagree
	Agree

Chu and Company organizes seminars and other events for companies and professional associations. Until recently, the firm organized only large events (average of 750 persons each) and had a volume of 20 seminars a year. In past year, the firm increased its scope to include smaller seminars of 100 persons each as well. While this action increased total expenses to $309,000 per year. The owner and CEO believed the action to be profit enhancing. As evidence, Mr. Chu points to the rapid growth of the small seminars (100 persons per seminar, 50 seminars in a year), without cutting into the number of large seminars.

1-1. When the firm only offered large seminars, the owner determined the price to charge the conference organizers by computing a cost per participant and adding a 40% markup. He continued this scheme even after he included small seminars to the product line. Under this scheme, determine the price per average large seminar and average small seminar.

1-2. One of the seminars the owner had organized was on activity-based costing. The owner caught fragments of the talk and wondered if the lessons apply to him. As a preliminary cut, he figures that costs per participant (mailings, preparing nametags, etc.) amount to $225,000 per year. The remainder of the $84,000 per year relates to coordinating with the hotel and caterers, obtaining AV equipment, hanging banners, etc. Using ABC, determine the price per large seminar and average small seminar.

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ACCT10003 Lecture 2: Lecture 2_online(2)

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