TRADITIONAL PRODUCT COSTING METHODS. Accounting Principles II AC 2102 - Fall Semester, 1999. Unit Product Costs. The unit cost is the total costs associated with the units divided by the number of units produced The concept is deceptively simple
Accounting Principles II
AC 2102 - Fall Semester, 1999
1st: What costs are included in total cost?
2nd: Should actual or estimated costs be used in the calculation?
3rd: How do we associate indirect costs with the product?
(1) Delays in collecting (or determining) actual overhead costs impedes producing unit cost data on a timely basis
(2) Substantial fluctuations result in the calculated monthly unit costs of product
Note: Both these disadvantages are caused by the process of assigning actual overhead costs to products
(1) Monthly fluctuations in the amount of overhead incurred by the company
- sometimes called the “numerator problem”
(2) Monthly fluctuations in the level of production, i.e.., the number of units produced
- sometimes called the “denominator problem”
Budgeted OH $/ Bugeted Activity Usage
Note: once the rate is determined, overhead is mechanically charged just as it would if an actual cost rate was being applied
Overhead Costs Unit Costs
Total Applied = Overhead Rate x Actual Activity Output
- The difference between the total actual overhead incurred and the total applied overhead assigned to production
- If the actual overhead is greater than the the total applied overhead
- If the actual overhead is less than the the total applied overhead
- Use direct tracing, driver tracing and cost allocation to assign (distribute) overhead costs to departments