Facilitator: Lara Tufegdzic | 2020S2/W12 | BUSS1030 |

References: ‘Accounting, Business and Society’, 3rd ed., Atrill et al,

Pearson; Week 11 Lecture Slides.

PROPOSED AGENDA
1. Welcome (5 mins)
2. Activity 1: Key Concepts (20 mins)
3. Activity 2: Full Costing (30 mins)
4. Close (5 mins)

LEARNING OUTCOMES

1. Identify the different cost types and apply them to real life situations
2. Calculate overhead application rates and the charging of overheads to jobs.
3. Undertake traditional costing and during discussion understand how activity-based costing differs

Activity 1: Key Concepts:

1. Distinguish between job and process costing:

Job costing involves costs that are assigned to each individual job (or batch). Whereas process costing involves the accumulation of
costs for lengthy production runs involving products that are indistinguishable from each other.

2. Distinguish between indirect and direct costs:

Direct costs are expenses that directly go into producing goods or providing services, they can be economically and physcially traced
to specific cost objects while indirect costs are general business expenses that keep you operating, also known as the overhead (can’t
be traced, running costs of the business).

3. In a bakery, maintenance staff wages are an example of an indirect cost: True or False?

4. In a bakery, the baker’s wages are an example of a direct cost: True or False?

Activity 2: Full Costing:

1. Excel Industries Ltd incurs the following monthly fixed costs: $8,000 for rent, $3,500 for electricity,
$850 for salaries, $1,200 for administration and miscellaneous costs. Excel Industries Ltd performs two
jobs: job A and job B, which require both direct labour and direct machinery hours.

Job A Job B Total

Direct labour hours 600 900 1500
Direct machine hours 800 500 1300
Total 1400 1400

a) Calculate the total overhead costs allocated for each job if they are allocated on the basis of labour
hours.
13550
Job A=
1500( )
∗600=5,420

13550
Job B=( )∗900=8,130
1500
Total=5,020+8,130=13,550

b) Calculate the total overhead costs for each job if they are allocated on the basis of machine hours.
DISCLAIMER: PASS materials have been developed by the PASS team using a range of resources. Unlike lecture and tutorial materials, the content has not been
developed in collaboration with lecturers and it does not have the status of “formal course content”. Rather, it is based on common questions from students and your
facilitator’s experiences. PASS materials are only intended for PASS sessions and are not to be taken to lecturers or tutors.  PASS material is not necessarily
representative of assessable/examinable content but does provide opportunities to deepen and apply your learning in specific unit of studies. For specific advice on
examinable content ALWAYS consult with your lecturers. The PASS team do not know what is on exams and cannot comment on assessable materials at any time. It is
not ethical for PASS facilitators to share their knowledge of the exams they have sat in the past, to advantage PASS participants against people who do not come to
PASS.  The PASS management team have instructed PASS facilitators not to provide such information at anytime.
Job A=( 13550
1300 )
∗800=8,338.46

13550
Job B=(
1300 )
∗900=5211.54
Total=8,338.46+5211.54 =13,550

c) Assume Excel Industries allocates overhead costs on the basis of direct labour hours. If 2,500 products
are made in Job A with a variable cost of $4.50 per product, what is the total cost producing one good?

Total ¿ costs? Variable cost∗units

TVC =4.5∗2,500=11,250
TFC =5,420
TC=11,250+5,420=16,670
16,670
=9.92
2500

2. BONUS Q: Fantastic Furniture Ltd produces two products: pleather and genuine leather lounges, and
this production involves the moulding, polishing and colouring of each lounge. Moulding costs
$300,000, Polishing costs $400,000 and Colouring costs $200,000.

The cost allocation is shown in the table below:

Total used Pleather Lounge Leather Lounge

Direct Inputs $15,000 $15/lounge $20/lounge
Moulding 1000 hours 0.5 hours 1 hour
Polishing 4000 hours 3 hours 6 hours
Colouring 5000 sprays 3 sprays 5 sprays

a. Using ABC (activity based costing), determine the full cost per unit

 ABC will be of limited benefit if the overhead costs are primarily volume related or if the overhead is a
small proportion of the overall cost.
 It is impossible to allocate all overhead costs to specific activities.
 The choice of both activities and cost drivers might be inappropriate.
Close

What is one thing you learnt today?

What is one thing you would like to revise further at home?

This week: Management accounting – costing

Next week: Management accounting – budgeting and revision

DISCLAIMER: PASS materials have been developed by the PASS team using a range of resources. Unlike lecture and tutorial materials, the content has not been
developed in collaboration with lecturers and it does not have the status of “formal course content”. Rather, it is based on common questions from students and your
facilitator’s experiences. PASS materials are only intended for PASS sessions and are not to be taken to lecturers or tutors.  PASS material is not necessarily
representative of assessable/examinable content but does provide opportunities to deepen and apply your learning in specific unit of studies. For specific advice on
examinable content ALWAYS consult with your lecturers. The PASS team do not know what is on exams and cannot comment on assessable materials at any time. It is
not ethical for PASS facilitators to share their knowledge of the exams they have sat in the past, to advantage PASS participants against people who do not come to
PASS.  The PASS management team have instructed PASS facilitators not to provide such information at anytime.