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    How Does Wilkerson's Existing Cost System Operate? Develop A Diagram To Show How Costs Flow From Factory Expense Accounts To Products

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    Kunal Dhage
    The current cost system at Wilkerson operates as follows: 1. Manufacturing overhead costs are allocated to products based on a percentage (300%) of direct labor costs, rather than actual overhead costs. 2. This leads to incorrect cost allocations, such as flow controllers being allocated $30 per unit in overhead despite having only $10 in direct labor. 3. The diagram shows how direct costs and overhead costs are calculated for each product based on the number of units produced and cost per unit, with overhead per unit being 300% of direct labor per unit.

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    How Does Wilkerson's Existing Cost System Operate? Develop A Diagram To Show How Costs Flow From Factory Expense Accounts To Products

    Uploaded by

    Kunal Dhage
    299 views4 pages
    The current cost system at Wilkerson operates as follows: 1. Manufacturing overhead costs are allocated to products based on a percentage (300%) of direct labor costs, rather than actual overhead costs. 2. This leads to incorrect cost allocations, such as flow controllers being allocated $30 per unit in overhead despite having only $10 in direct labor. 3. The diagram shows how direct costs and overhead costs are calculated for each product based on the number of units produced and cost per unit, with overhead per unit being 300% of direct labor per unit.

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    accounts ppt

    Original Title

    Accounts Kunal

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    The current cost system at Wilkerson operates as follows: 1. Manufacturing overhead costs are allocated to products based on a percentage (300%) of direct labor costs, rather than actual overhead costs. 2. This leads to incorrect cost allocations, such as flow controllers being allocated $30 per unit in overhead despite having only $10 in direct labor. 3. The diagram shows how direct costs and overhead costs are calculated for each product based on the number of units produced and cost per unit, with overhead per unit being 300% of direct labor per unit.

    Copyright:

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    Download as PPTX, PDF, TXT or read online from Scribd
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    299 views4 pages

    How Does Wilkerson's Existing Cost System Operate? Develop A Diagram To Show How Costs Flow From Factory Expense Accounts To Products

    Uploaded by

    Kunal Dhage
    The current cost system at Wilkerson operates as follows: 1. Manufacturing overhead costs are allocated to products based on a percentage (300%) of direct labor costs, rather than actual overhead costs. 2. This leads to incorrect cost allocations, such as flow controllers being allocated $30 per unit in overhead despite having only $10 in direct labor. 3. The diagram shows how direct costs and overhead costs are calculated for each product based on the number of units produced and cost per unit, with overhead per unit being 300% of direct labor per unit.

    Copyright:

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    Download as PPTX, PDF, TXT or read online from Scribd
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    of 4

    Current Cost System Operating

    Model
    3. How does Wilkersons existing cost system operate? Develop a diagram to
    show how costs flow from factory expense accounts to products.
    The approach to this question was to:
    Illustrate a process flow diagram of the current system
    Show how cost assignments are calculated in the current system

    Process flow diagram of current system


    Direct Labour

    1) Currently, direct
    labour costs were used
    to assume
    manufacturing
    overheads (MOH) i.e. if
    direct labour increases,
    so does manufacturing
    overhead. This cost
    assignment process
    therefore does not
    reflect the real costs
    incurred as opposed to
    when all the different
    activities are taken into
    account. For example,
    the machine related

    Production
    Department

    Valves

    Pumps

    Flow
    Controller
    s

    MOH Cost
    Assignment
    ($30)

    MOH Cost
    Assignment
    ($37.50)

    MOH Cost
    Assignment
    ($30)

    Finished
    Products
    Selling,
    General &
    Administrative
    Expenses

    2) This is therefore
    the incorrect cost
    allocation; e.g. for
    flow controllers
    where direct labour
    per unit is $10 (the
    lowest out of all
    products), they
    assume
    manufacturing
    overhead per unit
    is $30 (300% x
    $10) (see next
    slide for
    breakdown).

    How cost assignments are calculated in the current system


    Cost
    Assignment
    (Valves)

    Cost
    Assignment
    (Pump)

    Cost
    Assignment
    (Flow
    Controllers)

    Units
    Produced:
    7,500

    Units
    Produced:
    12,500

    Units
    Produced:
    4,000

    Direct
    Labour per
    unit ($10)

    Direct
    Material per
    unit ($16)

    $75,000

    $120,000

    x 300%

    Manufacturi
    ng
    Overhead
    per unit
    ($30)

    $225,00
    0

    Direct
    Labour per
    unit
    ($12.50)

    Direct
    Material per
    unit ($20)

    $156,250 $250,000

    x 300%

    Manufacturi
    ng
    Overhead
    per unit
    ($37.50)

    $468,75
    0

    Direct
    Labour per
    unit ($10)

    Direct
    Material per
    unit ($22)

    $40,000

    $88,000

    Manufacturi
    ng
    Overhead
    per unit
    ($30)

    $120,00
    0

    x 300%

    In the current system, direct labour, direct material, and MOH are calculated by taking the number of
    units produced and multiplying it by cost per unit. MOH per unit is calculated by assuming 300% of
    direct labour per unit.

    Product

    Valves

    Pumps

    Flow
    Controlle
    rs

    Total

    No. of Units

    12500

    4000

    24000

    Direct Labor

    7500
    $75,000

    $156,250

    $40,000

    $271,250

    Direct Material

    $120,000

    $250,000

    $88,000

    $458,000

    Total Direct Costs

    $195,000

    $406,250

    $128,000

    $729,250

    Overhead Costs
    (300% of DL)

    $225,000

    $468,750

    $120,000

    $813,750

    Total Cost
    Allocation

    $420,000

    $875,000

    $248,000

    $1,543,000

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