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Day 14 agenda

Day 14 agenda. Do problems. Overview of Process Costing. Review exams. How many people are comfortable with Capital Budgeting – NPV, Payback, IRR?. Overhead absorption. P9-4 FOH rate: $6,000,000/20,000hrs = $300/hr VOH rate: $120/hr Plant-wide rate: $420/hr

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Day 14 agenda

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  1. Day 14 agenda • Do problems. • Overview of Process Costing. • Review exams. • How many people are comfortable with Capital Budgeting – NPV, Payback, IRR?

  2. Overhead absorption P9-4 • FOH rate: $6,000,000/20,000hrs = $300/hr VOH rate: $120/hr Plant-wide rate: $420/hr b) Under/over-absorbed overhead = Actual overhead - Overhead applied Total overhead applied (21,000*420) $8,820,000 Overhead incurred $9,140,000 Under-absorbed $ 320,000 c) Net income will fall.

  3. Overhead absorption P9-5 • Production: $200/MH Assembly: $10/DLH • 100*200 + 750*10 = 27500 • Production: 1550*200-325,000 = 15,000 Under-applied Assembly: 10,500*10-65,000 = 40,000 Over-applied

  4. Process Costing • In process costing, outputs go through stage of the process continuously. At any time the work-in-process inventory of the firm consists of partially finished output that is at different stages of completion. To compute the cost of output correctly, it is important to compute the amount of work actually completed on the inventory in order to cost the output correctly.

  5. Process Costing • The key to process costing is equivalent units. • Suppose the WIP is described as follows: 100 units 100% complete with respect to materials, 75% complete with respect to labor and 50% complete with respect to overheads. What does this mean for computing equivalent units? Material Labor Overhead Equivalent Units 100 75 50

  6. Process Costing • In other words, equivalent units = Physical units * degree of completeness • Now it is easy to see that total output of a process must be: Ending WIP + Finished units transferred out - Beginning WIP All computed in equivalent units. • The trick is to recall that equivalent units must be computed for each group of inputs (material, labor & overhead) separately. • Then compute units costs etc as usual.

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