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8/9/2019 Costs, Common Costs, and Revenues
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Create Overhead Cost Pools
Through OraclesMassBudgets & AutoAllocations
tlanta - O UG
tlanta - O UG
November 21, 2003
ovember 21, 2003
Presenters:
Michael Anenen & PaulMichael Anenen & Paul
KraskiewiczKraskiewicz
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Presentation Agenda
1 Assess & !esign
Overhead Allocation Methods
Standard Cost Overhead Sub-elements
" Oracles Overhead A##lication Basis T$#es
% Cost Pool Allocation Process
'sing Oracles MassBudgets &AutoAllocations
( )uestions & Answers
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Presentation Agenda
1 Assess & !esign
Overhead Allocation Methods
Standard Cost Overhead Sub-elements
" Oracles Overhead A##lication Basis T$#es
% Cost Pool Allocation Process
'sing Oracles MassBudgets &AutoAllocations
( )uestions & Answers
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Assess & !esign
!eter*ine $our Allocation Method
TraditionalActivity-Base Costing
Overhead +u,-.le*ents Material Overhead
Resource / e!artment Overhead
Start with the End in Mind
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Assess & !esign
!eter*ine $our Allocation Method
Traditional
Activit$-Base Costing
Overhead +u,-.le*ents
Material Overhead
Resource / e!artment Overhead
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Overhead Allocation Methods
Basic Princi#als "stimate overhead costs #or the coming year
"stimate activity #or the coming year Calculate a!!lication rate as
.sti*ated Overhead Costs / .sti*ated Activit$
A!!ly overhead using actual activityand thea!!lication rate$
%# actual overhead & a!!lied overhead' thedi##erence is under-applied$
(nder-a!!lied overhead reducesincome
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Overhead Allocation Methods
Activit$-Based Costing
Multi!le Activity BasedRates )er e!artment
Traditional
Single )lant-*ide Rate Single Rate )er
e!artment
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Overhead Allocation Methods
Traditional AllocationAll overhead costs are
a!!lied using the samerate$
Activity is measured +ith
a single conce!t' such
as,
irect labor hours
irect labor dollars
Machine hours
Advantages: Sim!le Arithmetic
"asy to understand !isadvantages:
ittle relationshi!
bet+een costs and
activities Can lead to !oor
business decisions
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Overhead Allocation Methods
Activit$ BasedAllocation
Overhead costs aredivided into cost !ools$
"ach cost !ool has its
o+n activity measure
.cost driver$ 0umber o# !urchase
orders
0umber o# setu!s
Advantages: Closer causal lin1s
bet+een costs andactivity
Better costallocations
!isadvantages: Com!le2 calculations
3igh start-u! costs
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APP0CAB0T2 O3 O4.56.A!
A00OCATO7 M.T6O!+Method ofAssigningOverhead
Type ofAllocations
Number of
Stages
Basis ofOverhead
RatesWhen Applicable
Single )lant*ide Rate
4rom a singleaggregated cost!ool' to !roducts
A !roductionvolume relatedactivitymeasure' e$g$'direct labor
hours or dollars'machine hours'etc$
)lant !roduces onlyone' or a #e+ similar!roducts that consumeall indirect resources inthe same !ro!ortions'
e$g$' )roduct 5consumes 678 o# eachindirect resource in the!lant$
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APP0CAB0T2 O3 O4.56.A!
A00OCATO7 M.T6O!+Method ofAssigningOverhead
Type ofAllocations
Number ofStages
Basis ofOverhead
RatesWhen Applicable
Single Rate)ere!artment
4rom servicede!artments' to!roducingde!artments9 singlecost !ools .overheadaccounts' to!roducts
A !roductionvolume relatedactivitymeasure$ Thesemay be di##erent#or eachde!artment
"ach de!artment!roduces only one' or a#e+ similar !roductsthat consume all o# ade!artment9s indirectresources in the same!ro!ortions' e$g$')roduct 5 consumes:78 o# all indirectresources ine!artment A' 678 o#all indirect resources in
e!artment B' etc$
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APP0CAB0T2 O3 O4.56.A!
A00OCATO7 M.T6O!+Method ofAssigningOverhead
Type ofAllocations
Number ofStages
Basis ofOverhead
RatesWhen Applicable
Multi!leActivity BasedRates )ere!artment
4rom servicede!artments' to!roducingde!artments9 activitycost !ools' to!roducts
Bothproductionvolumerelated andnon-production
volumerelatedactivitymeasures,e.g., numberof purchase
orders,number of
"ach de!artment!roduces many!roducts that consumeresources +ithin eachde!artment in di##erent!ro!ortions' e$g$'
)roduct 5 consumes;78 o# the !o+er' 6
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Assess & !esign
!eter*ine $our Allocation Method
Traditional
Activity-Base Costing
Oracle Overhead +u,-.le*ents
Material Overhead
Overhead
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Oracles Cost .le*ents
Material
5esource
OverheadOutside
#rocessing
Material Overhead
5esource
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Oracle Cost .le*ents
Material Overhead & Overhead Overhead 85esource9:
This is the overhead cost o# resource andoutside !rocessing$ Overhead is used as ameans to allocate indirect !roduction costs$
Material Overhead:
This is the overhead cost o# material'calculated as a !ercentage o# the materialcost or as a #i2ed charge !er item' lot' oractivity$
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Overhead +u,-.le*ents
Materialoverhead
Materialoverhead
5esourceoverhead
5esourceoverhead
MaterialMg*t
MaterialMg*t 3acilit$
3acilit$
3reight-n3reight-n BeneitsBeneits
ProductionControlProductionControl
ndirectndirect
M3;.ngngM3;
.ngng
Overhead Cost
+u,-.le*ents
Overhead Cost.le*ents
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Presentation Agenda
6$ Assess = esign
Overhead Allocation Methods
Standard Cost Overhead Sub-elements
" Oracles Overhead A##lication Basis T$#es
;$ Cost )ool Allocation )rocess
>$ (sing Oracle?s MassBudgets =AutoAllocations
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Oracle
A##lication Basis T$#es Activity: irectly associate the activity cost +ith the item$
Item:Assign a #i2ed cost !er item$
Lot:Assign a lot charge to items and o!erations$ Resource units: Charge overhead by multi!lying the
overhead amount by the number o# resource units earned
in the routing o!eration$
Resource value: Charge overhead by multi!lying theoverhead rate by the resource value earned in the routing
o!eration$
Total value: Charge overhead by multi!lying the total cost
o# the item by the material overhead rate$
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Overhead A##lication
Basis T$#e 8.
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Oracles OverheadA##lication Method 8.ork Orders9
A*ount #er te*
Based on Activit$
3acilit$ 5esource 4alue
8ie 0a,or Cost9
+ingle 5ate
Per !e#art*ent
Beneits 5esource 4alue
8ie 0a,or Cost9
+ingle 5ate
Plant->ide
M3;
.ngineering
5esource 'nits
8ie +td 6ours9
+ingle A*ount
Per !e#art*ent
ndirect 5esource 4alue
8ie 0a,or Cost9
+ingle 5ate
Per !e#art*ent
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Overhead 5ates Assigned
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Overhead Cost A##lied
To te* 8.
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7eed Overhead Cost Pools
Material Overhead 5esource Overhead
Material
Manage*ent3reight-n
Production
Control3acilit$ Beneits
M3;
.ngineeringndirect
A*ount Per
te*8Activit$9
+ingle 5ate
8Bu$ te*sOnl$9
A*ount Per
te*8Activit$9
+ingle 5ate
8Per !e#t9
+ingle 5ate
8Plant->ide9
+ingle A*t
8Per !e#t9
+ingle 5ate
8Per !e#t9
Overhead Cost Pools !ollar?
@@@ @@@ @@@ @@@ @@@ @@@ @@@
Activit$ / 4olu*es7u*,er oPurchase
Orders
Total ?4alue o
Bu$ te*s
7u*,er o>ork
Orders
5esource ?4alue
5esource ?4alue
5esource'nits
8+td 6ours9
5esource? 4alue
5ates or A*ounts
?? ?? ??
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Presentation Agenda
6$ Assess = esign
Overhead Allocation Methods
Standard Cost Overhead Sub-elements
:$ Oracle?s Overhead A!!lication Basis Ty!es
% Cost Pool Allocation Process
>$ (sing Oracle?s MassBudgets =
AutoAllocations
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Cost Pool Allocation
+te#-!own Allocationndirect Overhead
3inance & +Budget
OverheadCost .le*ent Pools
3acilit$Budget
Ad*inistrationBudget
Manuacturing Organization!e#art*ental Budget
Material OverheadCost .le*ent Pools
MaterialMg*t
3reight-nProduction
Controlndirect
M3;.ngng
Beneits3acilit$
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Cost Pool Allocation
Man$ !e#art*ents
6 u * a n
5 e s o u r c e s
P r e s i d e n t & C . O
4 P 0 e g a l
A d * i n i s t r a t i o n
B u d g e t
M a n a g e r
o : 3 a c i l i t i e s
. u i # * e n t
M a i n t e n a n c e
B l d g & ; r o u n d s
3 a c i l i t i e s
B u d g e t
4 P 3 i n a n c e
a n d C 3 O
A c c o u n t i n g
P a $ r o l l ! e # t
1 n : o r * a t i o n + $ s t e * s
3 i n a n c e & 1 +
B u d g e t
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Cost Pool Allocation
Man$ !e#art*ents
4 P M 3 ;
P u r c h a s i n g
5 e c e i v i n g
> a r e h o u s i n g
& + h i # # i n g
M a t e r i a l
M a n a g e * e n t
P l a n n i n g
+ h o # 3 l o o r
C o n t r o l
P r o d u c t i o n
C o n t r o l
P r o c e s s
. n g i n e e r i n g
1 n d u s t r i a l
. n g i n e e r i n g
M a n u : a c t u r i n g
. n g i n e e r i n g
M e t a l
P l a t i n g
3 a , r i c a t i o n
! e # a r t * e n t s
P C B
+ u , - A s s e * , $
3 i n a l A s e * , l $
T e s t
P a c k i n g
A s s e * , l $
! e # a r t * e n t s
M a n u : a c t u r i n g O # e r a t i o n s
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Cost Pool Allocation
ndirect OverheadWhat Is The ProcessWhat Is The Process
3inance & +Budget
OverheadCost .le*ent Pools
3acilit$Budget
Ad*inistrationBudget
Manuacturing Organization!e#art*ental Budget
Material OverheadCost .le*ent Pools
MaterialMg*t
3reight-nProduction
Controlndirect
M3;.ngng
Beneits3acilit$
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+u**arize
Agenda te*s 1-"-%1 Assess & !esign
Overhead Allocation Methods
Standard Cost Overhead Sub-elements
" Oracles Overhead A##lication Basis T$#es
% Cost Pool Allocation Process
'sing Oracles MassBudgets &AutoAllocations
( )uestions & Answers
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+u**ar$ - Agenda te*s 1-"-%
!esign assess*ent Kee# the .nd in Mind
Overhead allocation #rinci#les
Allocation Methods: Traditional vs Activit$and the advantages and disadvantages
The a##lica,ilit$ o overhead allocation*ethods
Oracles cost ele*ents: MO6 & 5O6 Oracles a##lication Basis T$#es
+te#-down allocation #rocess
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Presentation Agenda
6$ Assess = esign
Overhead Allocation Methods
Standard Cost Overhead Sub-elements
:$ Oracle?s Overhead A!!lication Basis Ty!es
;$ Cost )ool Allocation )rocess
'sing Oracles MassBudgets =AutoAllocations
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Oracles MassBudgets
!einition A eature that allocates e
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MassBudgets vs MassAllocations
>hat is the !ierence@
+a*e 3unctionalit$
MassAllocations Balance T$#es:Actual
"ncumbrance
MassBudgets Balance T$#e Budget only
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MassBudgets MaEor 3eatures
Allocate cost #ools to *an$ accounts using a singleor*ula
Base $our allocations on Current PeriodD PreviousPeriodD or 2ear AgoD +a*e Period
Base $our allocations on *onetar$ or statistical account,alances
!eine $our allocation or*ulas onceD and use the* asreuentl$ as needed
5un MassBudgets *ulti#le ti*es without reversing the
outdated a*ounts 'se MassBudgets to do rate-,asedD usage-,ased andste#-down allocations
nclude su**ar$ accounts or oreign currenc$ a*ountsin $our allocations
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MassBudgeting Process
+te# ": Co#$ O#erating
Budget to Cost PoolBudget
+te# : 5eviewand deter*ine
Allocation or*ulas
+te# F: ;enerateMassBudget Eournals
and Post
+te# 1: !eineCost Pool Budget
+te# (: CreateMassBudget ,atches
+te# %:;ather Allocation
Bases 8+tatistical !ata9
+te# G: 4alidateMassBudget Batch
or*ulas
+te# H: !eine a
MassBudget or*ula#er ,atch
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+te# 1:
!eine Cost Pool Budget
Create a ,udget to re#resent a collection oesti*ated a*ounts or a range o accounting#eriods 2ou can use AutoCo#$ to create a new,udget ro* an e
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+te# ":
Co#$ O#erating Budget A*ounts
1 6it AutoCo#$ Button" +elect+ource Budget
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+te# %:
;ather Allocation Bases8+tatistical !ata9
5eview all reuired statistical accounts andenter additional values into the Account+eg*ent 3or e
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+te# :
!eter*ine Allocation 3or*ulas
5eview $our reuire*ents and deter*inethe allocation or*ulas 3or e
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+te# (:
Create MassBudget Batches or.ach +te#-0evel
;rou# MassBudget,atches ,$ allocationlevel
This assures accuratecost #ools
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+te# H:
!eine MassBudget 3or*ulas
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+te# G:
4alidate MassBudget Batch 3or*ulas Ater $ou deine a new
allocation ,atchD orchange an allocation
or*ulaD $ou *ustvalidate the ,atch ,$running the MassBudget4alidation #rogra* The#rogra* veriies that
$our allocation or*ulasconor* to theallocation or*uladeinition rules
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+te# F:
;enerate MassBudget Iournals 'sing ,udget Eournals
*aintain an audit trail or$our ,udget ,alances
;enerate MassBudgetIournals to createun#osted ,udget Eournal,atches ,ased on $ourvalidated MassBudget
or*ulas The generatedEournal ,atch containsan entr$ or ever$allocation or*ula in the,atch
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'nderstanding
Oracles 3or*ula +$nta
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