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3-1
f
g
Cost Object
product line or
customer
product line
product line
product line
product line or
customer order
each product
product line
h
I
j
customer
each product
product line
a
b
c
d
e
Cost Driver
each product line, or each custom order requiring
design
number of customer orders
number of customer orders
number of purchase orders
number of orders
units produced
cannot be traced to product or customer; must
allocated using some reasonable method,
example, materials cost in each order
number of customers
units produced
cannot be traced to product or customer; must
allocated using some reasonable method,
example, the number of units produced
3-2
be
for
be
for
3-3
3-4
fixed
variable
mixed
mixed
variable
3-5
3-42 Military Downsizing and Direct vs. Indirect Costs (20 min)
In recognition of this problem, and of the large number of contract
appeals it has caused, the various federal boards of contract appeals
have ruled in favor of treating certain indirect costs as direct costs in
these situations:
1) In an appeal filed by Fiesta Leasing & Sales, Inc., the board
allowed depreciation on buses purchased for a bus leasing contract
when the Defense Department terminated the contract. The board
allowed depreciation costs because the costs were incurred for the
contract and because these costs could not be discontinued after the
contract was terminated.
2) In an appeal brought by Essex Electric Engineers, Inc., the
Department of Transportation (DOT) Contract Appeals Board allowed
recovery of the full cost of equipment remaining at a plant when the
contract was terminated for the convenience of the DOT. The reason
for the ruling is that the equipment purchased by Essex for the DOT
contract was far beyond its needs for its other business.
Source: Based on information from: Margaret M. Worthington, As
Military Downsizes, Contract Termination Becomes a Challenge,
Journal of Accountancy, March 1992, p88-90.
3-6
3-7
PROBLEMS
3-46 Product Costs and Period Costs (20 min)
Product cost=Direct Labor + Direct Material + Factory Overhead
Direct Labor for Galletas Americanas
Salaries & Wages
Labor fringe benefits
Total
Direct Material for Galletas Americanas
Ingredients for cookies
$15,000
1,000
$16,000
$27,000
$10,000
Manufacturing Costs
Depreciation of Plant & Equipment
Insurance
Utilities
Equipment maintenance
Overtime Premiums
Idle time
Uniforms
Boxes, Bags
Total Factory Overhead
Total Product Cost
$ 1,500
600
1,600
600
2,000
400
300
700
$17,770
$60,770
Period Costs
Rent
Administrative Costs
Advertising
Total Period Cost
70
$ 13,200
800
1,500
$15,500
3-8
3-9
3-10
3-48 (continued)
truck fleet and service teams versus the opportunity to provide
additional services to existing customers.
3-11
3-12
1,098,000
$577,000
Gross Margin
Advertising Expenses
$ 16,000
Sales Representatives' Salaries
216,000
Supplies--Administrative Office
42,000
Depreciation Expense--Admin. Office
73,000
Depreciation Expense - Delivery Trucks
34,000
Total Selling & Administrative Expenses
Net Income
3-13
381,000
$196,000
3-14
$ 1,488
20
1,468
247
1,040
1,287
175
3-15
1,112
356
218
$ 138
2
$ 140