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Hey guys, so we don't have a question this week as Oliver will be using the TA extra hours for that. I would just like to say that great work throughout the term and goodluck on all your exams!

p.s dont forget the last summary sheet due tonight.
-Ishaan

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Hey, I was waiting to see what for Shannon posted to pick the next part creator. But if Ishaan wants to volunteer, go for it.

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Go for it! :)

- Chris

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Hey guys, if we don't have a part creator for the week yet I would like to volunteer. Also unless anyone has any objections haha.
- Ishaan

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Hey everyone, great job at answering the question as a team! Don't forget to bring in external sources when appropriate, keep up the good work. :)

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Farid provided 3 excellent examples, explaining E0Q.

For a visual example, see the youtube link below!

https://youtu.be/AYpjPWmlyHM

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I have added on the minimum TP example with Moriah's example from Question 2 - Part 5/5

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Hey Corey,

I will have it up within the next 30 mins, and I can just add it to the final copy if that works with you?
- Ishaan

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Helping Oliver #5            ->Missing Question 2 part 4/5 from Ishan

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Helping Oliver #5            ->Missing Question 2 part 4/5 from Ishan

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I'm still waiting for Ishan's part to upload the final document.

I'm currently at work at won't be finished until tomorrow at midnight and wont have a chance to finish his section.

Would someone else be willing to step up and complete his part?

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I think Rowan has done an excellent job explaining market-based pricing. Just remember that market-based pricing is whatever is currently being charged in the competitive market.  Market-based transfer prices leads to optimal decision making if the market is perfectly competitive for the intermediary product, the divisions have minimal interdependence and there are no additional costs/benefits to the company from buying or selling externally instead of internally. This means, as Rowan mentioned, that this pricing method is best to utilize when at full capacity and there is a market for the product.

This method should be utilized when market prices are available, there is a competitive market for the product and the company is operating at capacity.

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The first major decision when it comes to managing goods for sales is to decide how much of a particular product should be ordered. The Economic Order Quantity (EOQ) procurement model is used to calculate the optimal amount of inventory which should be ordered to minimize the total costs of inventory. There are a set of assumptions which need to the fulfilled in order to use the EOQ formula effectively:

·      The method is used as a part of a continuous review inventory process, where the level of inventory is monitored at all times and a specific amount is ordered each time until the level reaches a specific re-order point

·      The demand, ordering costs and carrying costs are certain. The purchase order lead time, which is the time between the placement of an order and its delivery, is also certain as well

·      Purchasing costs per unit are unaffected by the quantity ordered. This assumption makes purchasing costs irrelevant to determining EOQ since purchasing costs of all units acquired will be the same

·      No stockouts occur. Since stockouts are prohibitively high and we assume that to avoid these potential costs, the organization always maintains adequate inventory so that no stockouts will occur

·      In deciding the size of the purchase order, the management team considers the cost of quality and shrinkage only to extent that these costs affect ordering or carrying costs

In this case D is the demand for a certain period, P is the ordering costs per purchase order and C is the carrying cost of one unit in stock for that certain demand period.

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Cost-Based Transfer Prices are determined based on costs of producing the intermediate product. A company can use any variation for deciding which cost based approach to use.

Different approaches are variable production costs, variable and fixed production costs, full costs, cost plus markup.It is useful when there are no available/appropriate market prices or too expensive. A downfall on cost based is it doesn't allow for management to have incentive to keep costs down.

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Feel free to just find the minimum TP in the problem I made up as your example!

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Market-based transfer pricing uses prices from the external market to determine the internal price for commerce between buying and selling divisions.

This method of transfer pricing works best when the selling division is operating at full capacity (i.e. they have an active market for all the goods and/or services they produce). The reason for this is that they know the exact market price and should sell internally at no less than they can earn on the open market.

If they're operating at idle capacity, their excess production does not have an active market and, thus, should be sold at some cost-based transfer price. Since there is no market to sell the excess production to, there is no opportunity cost lost by selling internally, and the only costs to cover in the internal sale are the variable costs of production.

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This is how I’ve decided to break up the questions so that everybody will have an opportunity to contribute

Question 1: Inventory

Part 1/2: Explain Economic order Quantity (EOQ)- Hristijan

Part 2/2: Provide examples for EOQ- Cindy and Farid

Question 2: Transfer Pricing

Part 1/5: describe Market based transfer pricing method and explain when it should be used – Michaela

Part 2/5: describe Market-based transfer pricing method and explain when it should be used – Rowan

Part 3/5: describe cost-based Transfer pricing method and explain when it should be used – Paula

Part 4/5: Provide an example for how to calculate the minimum transfer price – Ishaan

Part 5/5 - Provide an example for how to calculate the maximum transfer price - Moriah

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I am passing on the torch to you :P

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Well done team!!!

So proud with the amount of work you have put into this assignment! You deserve a pat on the back for a job well done.

Looking Forward to the next one! :)

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Spoilage occurs when units of production, when inspected, don’t meet customer specifications for a good unit and is assumed to occur at the stage of completion where inspection takes place.

There are two types of spoilage:
1. Normal spoilage is inherent in a particular production process that arises under efficient operating conditions; difficult to avoid, and is typically included as a component of the costs of units manufactured. For example, stamping parts out of a sheet of metal will inevitably result in some of the metal being rendered unusable.
2. Abnormal spoilage is not inherent in the production process, would not arises under normal operating conditions and considered avoidable and controllable.  For example, an overcooked meal cannot be served to a customer, and so is instead classified as abnormal spoilage.

Normal spoilage costs are allocated to units in ending WIP only if they have passed the inspection point

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To illustrate the three types of re-work, I'll use a Headphone manufacturing business as an example.

(1) Normal rework attributable to a specific job - One headphone brand that frequently malfunctions in one-side of the ear, but is fixable, would be an example of this type of rework

(2) Normal rework common to all jobs - If all headphone brands experience fixable malfunction in one side of the ear, this would be an example of this type of rework

(3) Abnormal Rework -  If there is no past history of malfunction in one side of the ear for any brand but a product needs to be fixed for this malfunction now, this would be considered abnormal rework

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Rework is similar to spoilage in the sense that it consists of products that do not meet the specifications required by the consumer, but the difference lies in the fact that products in rework will be worked on again which enables the producer to sell the product at full price whereas spoilage is considered damaged goods and is either discarded or sold off at heavily discounted prices to account for the level of defect.

Reworked units are the units of product that were initially rejected due to their inability to meet client requirements but have now been worked on again and are ready to be sold to the customers at full price.

For a more in-depth explanation of rework I would suggest checking out the following link: https://www.managementstudyguide.com/spoilage-and-rework-in-job-order-costing-system.htm

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Okay sweet, thanks for the quick answer!

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Basically what I am saying is that if you have the time include some knowledge from multiple sources. That can be the textbook, slides, articles, anything found online and etc. I was just giving you an example of what you can do to have the perfect answer :)

Hopefully that answers your question

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Hey Chris, I'm just wondering what you mean by more details gathered by different sources. Do you mean like just including sources other than our textbook/slides?

Thanks,
Ishaan

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Transferred in costs should make more sense based on the example and videos provided by Cindy as well as the examples provided by Farid. Transferred in costs are different from beginning inventory though.

Beginning inventory, Work in progress (WIP) contains the items that have not been completed and must be worked on further. Example: If you’re putting a chair together and you only have three legs, you will have to wait for a fourth leg to complete the process. Your semi-finished chair will be in your Beginning WIP tomorrow as you don’t have that fourth leg.

Transferred in costs are the costs associated with incomplete products. These products are moving from department to department to go through the required process to be completed. Transferred in costs helps us track associated costs of production as the units moves through the process. Farid has an excellent diagram that should help you see how transferred in costs move though production.

Just remember that Beginning WIP is whatever we couldn’t finish, whereas transferred in costs are the costs associate with the units that are moving from one department to another in order to undergo all required process  to be completed (example: we are now painting(department 3) the assembled item (department 2) which was originally individual parts (department 1)).

If it’s just beginning inventory of the product overall (ie chairs), remember that beginning inventory contains completed products from a previous period where as transferred in costs are going to be recorded in inventory after they are completed in the current period.

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I've feeling really under the weather all week. I'll try my best to submit my part today, but it will most likely won't be completed until tomorrow.

Sorry for any inconvenience this may cause.

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What are transferred in costs?

Transferred-in costs are basically the costs incurred as a result of switching the processing of a product/service from one department in a company, to another.  These costs are treated as a separate type of direct material added in the beginning of the process.  In the real world, companies that continuously create similar products, through a series of operations, are the types to utilize transferred-in costs. Think food processing companies, or companies that produce textiles or chemicals! Below are two YouTube videos which explain how transferred-in costs work!

https://www.youtube.com/watch?v=qTQL8UhwKs8

https://www.youtube.com/watch?v=guZc84c5HNI

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3. How do you account for spoilage within a job-costing system? (This includes how to account for the magnitude of spoilage costs, as well as normal and abnormal spoilage)?

In a job-costing system,companies can decide to assign normal spoilage to specific jobs or as a common to all jobs. When normal spoilage occurs due to a specific job, that job bears the cost of the spoilage reduced by the current disposal value of that spoilage.
For normal spoilage for all jobs, costs may be considered a normal characteristic of a given production cycle.

If abnormal spoilage occurs, it is recorded as a cost of the period and  net losses are charged to the Abnormal Spoilage Account

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Alright guys I have managed to break down the questions and include divide up the work so that everyone will be able to participate.

Question 1 - Transferred in costs

1.     What are Transferred in costs? (Basic definition plus a bit more details gathered from different sources) – Part 1 / 4 is assigned to: Cindy

2.     List some relevant examples of transferred in costs (Make sure that these examples are detailed and applicable) – Part 2/4 is assigned to: Farid

3.     How are Transferred in costs different from beginning inventory? (You need to make sure that Oliver clearly understands the difference between the two terms) – Part 3/4 is assigned to: Michaela

4.     How to deal with them in the bigger process costing problems? (You can use an example from the textbook / work assigned within the class or simply discuss a step by step process of what needs to be done) – Part 4/4 is assigned to: Corey

Question 2 – Spoilage and Rework

1.     What is spoilage? / What spoiled units are? (Basic definition plus a bit more details gathered from different sources. You can also discuss how units are inspected for any defects before they are sold.) – Part 1 / 4 is assigned to: Moriah

2.     What is rework? / What are reworked units? (Basic definition plus a bit more details gathered from different sources. You can also discuss how this is different from spoilage) – Part 2 / 4 is assigned to: Ishaan

3.     How do you account for spoilage within a job-costing system? (This includes how to account for the magnitude of spoilage costs, as well as normal and abnormal spoilage) – Part 3 / 4 is assigned to: Paula

4.     How do you account for rework within a job- costing system? (This includes what are the three types of rework and potentially include some examples which ties everything together.) – Part 4 / 4 is assigned to: Rowan

Please let me know if you have any questions / concerns with how the work has been assigned.

Thanks,

Hristijan V

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That would be great. Go for it!

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Hey guys, I don't think that we have a part creator for this particular Helping Oliver assignment. I can volunteer and take on the role of the part creator for this one and divide up the work. I will be able to post the parts within the next couple of hours once I am done with my classes.

Cheers!

Hristijan V

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Enjoy the break everyone. Thanks for the shout-out Paula :) Good work team - great Cumulative Cindy!!

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A big thank you to Cindy and Rowan for being part-creators as well as everyone else for their timely inputs. I hope everyone has a great reading week despite our midterm coming up the weekend after!

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Hey Oliver!! My team and I are ready to help you better understand the ins and outs of both Absorption, and Variable costing!

We’ve broken down your questions into four separate parts. Don’t worry! It’s easier this way! Once you read through this, I’m sure you’ll become a pro!! Whenever you’re ready, take a look!
--Cindy

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Haha sounds good, looks like it worked out to wait (:

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It happens!!! No need for apologies! Especially since this is midterm week!!

Rowan - it's a little more fair if everyone has a chance to be a part of the Cummulative!  NO TEAM MEMBER LEFT BEHIND!!

I had an evening class yesterday and work all day today! But the summary will be up by 5pm!!!

GO TEAM!!!

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No worries bruh, it happens

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Hey Cindy and team members,

I would like to apologize for not responding in a timely manner and assure you this won’t be happening again.

- Ishaan

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A great example of businesses using absorption costing is the automobile industry. Ford, General Motors, and Chrysler all used absorption costing that let them assign all of their costs to the total number of products made. This encouraged the automobile makers to produce more and more cars to offset their costs and temporarily boost financial performance. They however did not take into account that they would also need to sell all those cars in order to actually make a profit and this ended up harming the firms in the long run.

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Cindy provided an excellent example of business that use variable costing. I will expand on her idea by detailing why business in real world would use of variable costing.

Information was obtained here

Increase in Profits

Assuming the fixed costs of sales and production remain the same for a given period of time. Managers who consider variable costing to sell additional units during a specific time frame add to the company's bottom line in sales and profits because the units do not cost the company more money to produce. Variable costing does not take into account fixed or absorption costs; therefore profits are likely to increase by the amount earned through the sale of the additional item.

Product Offerings
Managers use variable costing to determine which products to offer and which products to discontinue. Rather than discontinuing a product based on negligible profits, a manager can use variable costing to determine the overall costs of keeping a unit in production.

example) discontinuing products

If a company offers four products and decides to discontinue two, the two remaining products have to absorb higher overhead expenses. Variable costing illustrates the impact that discontinuing a product has on all costs related to production. When considering variable costing, managers logically see that keeping a particular unit in production helps absorb fixed costs and maintain overall profitability.

Cost Control

Variable costing systems simplify the estimation of product and customer profitability. Rather than analyzing data hidden by costs that would exist whether a unit is produced or not, variable costing allows managers to analyze data based on the actual cost of production. Understanding the actual cost of each unit allows managers to reduce variances between actual and budgeted amounts, which often means controlled costs and higher revenues for the organization.

Accuracy
Most organizations do not produce or sell the same number of units each period. Because sales fluctuate, managers could make poor decisions based on obscured data, unless they use the most appropriate costing system. Variable costing helps managers with irregular sales patterns more accurately determine the cost of production during a given period.

Example) If sales patterns are comparable each year

Sales increase during the winter months and decrease during the summer months. Managers can use variable costing data to approximate future costs of production.

Summary of Advantages of variable costing
Variable costing shows your profits after all the bills have been paid for the accounting period. Though you may not have received revenues for the products you manufactured because some could be in inventory, you show that you have paid all of your expenses for the period. When you finally sell the finished products in inventory, you have surplus income.

Summary of Disadvantages of variable costing
Variable costing shows full payment for fixed-overhead expenses for the accounting period. Even if you don’t sell all the products you make, you must deduct the full cost of fixed overhead. This means you show less profit for the period because you show your complete overhead expense even when you haven’t sold all of your products. You show reduced income because of unsold products but full expenses for overhead.

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If push comes to shove, its nbd if not everyone submits their part. You can always work with what we have so far for the cumulative. Members who are late to post won't have their input in the cumulative but can always post after. There was one member missing for me last week. It's up to you but since it's now been 5 days since the question, I'd say go ahead with the cumulative.

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Hey you two!

The team needs you guys to pull your weight and complete your parts please!

I can't summarize and hand in a final copy unless you do yours!!!

THANKS :)

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Variable costing is a method of inventory valuation in which only variable manufacturing costs are included as inventorial costs. All other costs such as fixed and non-manufacturing are classified under period costs which are then expensed in the specific timeframe they have been incurred. Under this system there is no amortization of the manufacturing plant and equipment which is then added onto the overhead rate assigned to each unit within inventory. These costs are essentially treated as period costs which are then expensed under cost of goods available for sale.

Variable costing tends to limit the issues which are derived from absorption costing, such as the fact that income tends to rise as the inventory production increases. Both of these costing methods treat Fixed Manufacturing Overhead differently. Under absorption costing, FMOH is treated as a product costs, while under the variable costing method FMOH is treated as a period cost.

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In Canada, absorption costing is the require inventory valuation for external reporting. As a result, every company will have to use absorption costing externally. However, they can use their own discretion to pick how they report performance internally. Most companies prefer to use the absorption method for both to prevent any inconsistent information and for managers to “enhance” their performance despite it not enhancing corporate performance.

Companies that should use absorption costing are those who sell products that aren’t always sold in the same accounting period as it’s being created. Companies that manufacture products that do not sell quickly and aren’t  quickly replaceable should use this approach.

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The type of costing that a company uses is based on personal discretion, however, if a company tends to have more variable costs associated with doing business, they may be more apt to utilise variable costing.

Businesses that pay employees by billable hours (the amount of hours they work not a salary) are more likely to use variable costing especially if their employees also receive sale commissions. Examples of such business include any retail store or car dealerships. I know Future Shop/Best Buy previously utilised this model. Labour intensive businesses such as construction companies, landscapers and mechanics may also select this model.

Another area of business that may employ this model is the manufacturing business. Manufactures incur a lot of different variable costs during the production of articles. Variable costing is more likely to be utilised with more specific products rather than mass produced articles. Some examples include computer parts, production of a car (from design to trials and then production) and, in a small business, making jewellery.

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Building on Farid's explanation of Absorption costing, I'll show how it works with a basic example.

As mentioned, Absorption costing absorbs all manufacturing costs into product costs. Unlike, direct costing, this includes Fixed Manufacturing Costs. So for example:

If unit production is 100,000, Variable cost per unit is $6 and fixed cost per unit ATTRIBUTABLE to manufacturing costs is $3 per unit:

Cost of Goods Sold (Absorption)=$900,000
Cost of Goods Sold (Variable) = $600,000

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How variable costing works:

When doing variable costing, the only costs that VARIABLE get added to the cost of inventory Meaning  variable period costs AND variable product costs are inventoried. This means that any fixed costs, both product and period, are expensed in the period incurred.

Variable costing allows managers separate out costs that are and aren’t influenced by changes in production and inventory levels which in turn helps to reduce the incentive for managers to increase production so that there is more inventory left unsold at the end of a period.

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Hi Everyone!!

So this week, as per Rowan's name draw, I will be the part creator!

Oliver asked three separate questions, but I've broken them down into 4 parts.

These are the deliverables for this week:

Part 1:  Explanation of absorption costing and how it works (one person defines absorption, one person explains how it works)

Farhid (1/2) + Rowan (2/2)
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Part 2: Explanation of variable costing  and how it works (one person defines variable, one person explains how it works)

Hristijan (1/2) + Moriah (2/2)
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Part 3: Real world (business) applications to Absorption costing (Examples of businesses that apply Absorp. Costing)

Paula (1/2) + Ishaan (2/2)
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Part 4: Real world (business) applications to Variable costing (Examples of businesses that apply variable costing)

Michaela (1/2) + Corey (2/2)

-----------------------------------------

Feel free to get creative and use videos and pictures, or anything else to help drive the point home :)

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Hi Group,
writing below is just the definition of absorption costing, if other members can explain about other part of question would be great, as professor asked for everyone's participation!

Absorption costing is a costing system which treats all costs of production as product costs, regardless of weather they are variable costs or fixed. The cost of a unit of a product under absorption costing method consists of direct material, direct labor and both variable and fixed overhead. Absorption costing allocates a portion of fixed manufacturing cost to each unit of product, along with the manufacturing cost. Because absorption costing includes all costs of production as product costs, it is also referred as full costing method as well.

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Hi Group! I am posting this for Corey Hoekstra... the padlet was giving him issues when he was trying to post it. Here it is.

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I put everyone's name in my breakfast sandwich bag and then drew out a name at the end. The name I drew out is the Part-Creator for next week. It is essential for the part-creator to create the assigned parts the day after the Helping Oliver Question is posted, at the latest. If not, I'll delegate the role directly to someone else, as the group is stalled until this task is performed. The name I drew out is.... CINDY

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Oliver Question 2 - CUMULATIVE (PARTS 1-4)

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Oliver Question 2 - CUMULATIVE (PARTS 1-4)

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Here it is. I've incorporated everyone's ideas, summarized, and adjusted for flow purposes.

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On a very basic level, the difference between a static budget and a flexible budget is that the static budget is based on budgeted rates and budgeted output and a flexible budget is based on budgeted rates and actual output.

A static budget is like the master budget that is made at the beginning of a period to plan for what is assumed to happen during the period. It is based off of estimated prices, rates, quantities, and level of output. For example, if a company estimates that they will produce and sell 1000 units during a year and that it takes 5 hours to make each unit and that workers get paid 15 dollars an hour, the direct labour cost that will go into the static budget is 1000 x 5 x 15 = $75,000

Now, a flexible budget is made at the end of the period and it adjusts for the changes in the actual level of output and actual revenue as well as the cost drivers. The flexible budget uses standard rates and prices and applies them to the actual level of output. For example, if at the end of the period the same company mentioned above actually produced 850 units, then the amount of direct labour on the flexible budget will be 850 x 5 x 15 = $63,750.

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Sounds good Corey: rowanabraham26@gmail.com

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I think so too! My plan wasn't to be a dictator haha (:

Each part-creator can do this after posting the cumulative response (and remove their and previous part-creator's names from the hat)

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I really like that idea! That seems like the most fair AND utilizes a video platform!

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So...the website wont upload the document I have been working in. it just gets stuck on the loading bar every time.

Rowan, do you want me to just email it to you?

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Yeah, absolutely Cindy! After this week, my idea is to  post a video randomly drawing from a hat (with everyones name except my own) and whoever I draw can be part-creator next week

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I forgot to respond to your question you posed. I like your idea for naming convention!

We should really consider making a schedule of who is the Question Assigner so that it's fair throughout, and so that each person gets the leadership opportunity to delegate tasks!

Let me know what you think!

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Hey Corey, I've been extremely busy (and in Kitchener) so I haven't had time to get to doing my part. No need to do my part as i'm very much so capable.

I found a cool quick YouTube video (below) to to explain variances. It's very accurate and to the point!!! You've done an extremely thorough job of going through the variances (great job)! This is kind of a visual of what you explained!

https://www.youtube.com/watch?v=DFD2E5sO6k0 [Static, Flexible, and Actual

https://www.youtube.com/watch?v=XjY-o3FIj3I
[ price and usage variances]

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With standard costing, differences between standard and actual costs are considered variances. As Hristjian previously stated, standard costing calculates the cost of goods sold and Inventories on predetermined rates. Normal costing is calculated with actual direct labour and material and a predetermined overhead cost. With standard costing, any differences are assigned to Cost of Goods sold and the inventories associated Inventories. While normal costing differences are placed to Cost of Goods Sold and larger differences also flow into Work in Process and Finished Goods Inventory accounts. Normal costing yields more accurate understanding of product costs since it uses the actual material and labour components. However, since actual costs aren't readily available companies will use standard costing for budgeting and forecasting.

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Remember the tree chart from the slideshow that displayed all the different variances and how they were connected? Of course you do! Those same variances are also calculated for FMOH with some minor changes and an additional variance. Don’t forget that no matter how many units are sold, fixed costs remains the same (as long as you’re in the relevant range).

The static budget, the flexible budget and the rate variance all give you the same answer!Fixed costs are not changing when the volume of outputs change meaning the static and flexible budget amounts would be the same. All three of the variances are looking at the difference between the actual and budgeted costs. With the actual costs all being the same and the budgeted costs (your unchanged fixed costs) being the same, you will end up with the same variance. Isn’t that interesting? This is typically called the FMOH budget variance.

The following two variances are not calculated:

·Sales Volume Variance: Fixed costs are unaffected by changes in the sales volume meaning, there is no change in the static and fixed budget (we just learned that)

· Efficiency variance: Similar to the sales volume variance, if we have fixed costs, how can we go about make them more or less efficient? The answer is we can’t. These costs are not changing with the different quantities utilized because they are fixed for the relevant range.

That doesn’t seem too bad. Now we’ve made it through all the variances we know. Sadly, there is one more and it’s called the volume variance. The volume variance examines the difference between the actual FMOH incurred and the FMOH applied. This is similar to under/over applied overhead so it will be a piece of cake. To calculate this variance, the FOH allocated to actual outputs multiplied by the Budgeted FOH rate (amount applied) is subtracted from the Budgeted FOH (fixed costs you expected to incur). This is very similar to what we did with job costing. Just like job costing, a FMOH rate will have to be found. This is done by taking the budgeted overhead costs divided by the budgeted quantity of allocation base units. You should be able to find this no problem based on your previous knowledge! With variance, it’s important to know whether it is favorable or unfavorable. Here is a trick to remember how to allocate the overhead: “UN”der applied = “UN”favourable and over applied= favourable.

To sum it all up, in regards to FMOH:

· Sales Volume variance and Efficiency Variance aren’t to be calculated as FMOH costs remain constant no matter the fluctuation in units

· The static budget variance, flexible budget variance and the rate variance all give you the same variance and are called FMOH Budget Variance

· New variance: Volume variance is the difference between the actual FMOH you incurred and the FMOH you applied

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Hey guys, I will be making changes to some of the points and the general formatting later tonight

In order to manage costs better, organizations make use of a standard costing system that uses allocation bases such as direct labour costs, direct labour hours, and machine hours to estimate overhead costs. An overhead variance is just the difference between the applied overhead (estimated) and the actual overhead incurred during the year.

Overhead Variances consist of both fixed manufacturing overhead variances and variable manufacturing overhead variances, and can be used to reconcile the actual overhead with the applied overhead. This can be done by taking the sum of: (VOH Rate Variance) + (VOH Efficiency Variance) + (FOH Budget Variance) + (FOH Volume Variance)

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Sounds great man! No problem on the titling haha.. Easy mistake.. and sounds good.. I bet other members will start posting on Saturday, with no classes and all

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I updated my question to follow the format specified, I was just really tired at the time and made a mistake.

Additionally, I will be adding on to my question in the next day or 2. If Cindy does not contribute soon, I will try and finish the question by saturday

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Hey everyone, great job so far! Your approach seems to be organized and clear to ensure that the full scope of the question is being answered. To clarify there's not a set deadline but like Hristijan said the sooner the better. I would say try to post before the 4-5 day mark, obviously things get hectic around midterm time but just try your best to stay on top of it! Keep up the good work.

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Okay, awesome. My hope is that people will have their responses in soon then. I'll make the cumulative response on Sunday, at the latest

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I think that it is as soon as possible. It has to be reasonable and everything to be done within 4 days after the questions have been posted. But I do believe that we get extra points for answering the questions within the first two days.

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Does anyone know when/if there is a deadline for responding to Helping Oliver questions?

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Standard costing focuses on the variance analysis of the use of Direct Labour or Direct materials for a particular unit of output. Certain standards or targets need to be established and recorded into the accounting system which indicates how many units of input should be achieved by any similar process. These standards do not change over time and differ from benchmarks or budget amounts since there is a bigger focus on averages and the deviations from the standards.  With the standard costing method, you have the opportunity to analyze the average pre-determined cost per input or a predetermined average total input cost per unit of output.

Gathering and analyzing the variance data based on the Standard costing method is quite valuable for managers since they are able to evaluate the day-to-day business operations, and identify key issues within the organization. If the company has implemented standard costing, then it is easy for the organization to identify any variances, drill down till the lowest level and figure out which employees or activities are responsible for the deviation from the standards.

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You need to change the title of your post to 'Question 2 - Part 3 (2/2)' The title you used was just the example that I used to show what Ishaan would title his post. Great work so far.

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Here are some variances I have found so far. I'll expand this later...

Level 0)
For DM and DML:
Static Budget Variance = (Actual Cost - Static Budget)

For Variable Overhead:
VOH Static budget Variance = (Actual Cost - Static Budget)

For Fixed OH:
FOH Budget Variance = (Actual Cost - Static Budget)

Level 2)
For DM and DML:
Flexible Budget Variance = (Actual Results - Flexible Budget)

Which is composed of:
i) selling price variance(Actual selling price-budgeted selling price)

ii)VC variance = (actual VC -Budgeted VC)

iii) FC variance= (actual FC- budgeted FC)

Sales Volume Variance = (Flexible Budget Amount - Static Budget Amount)

For Variable Overhead:
VOH Flexible Budget Variance = (Actual Cost - Static Budget)

VOH Sales Volume Variance = Flexible Budget- Static Budget Amount)

For Fixed OH:
FOH Budget Variance=  (Actual Fixed Cost - Flexible Budget variable cost)

Level 3)
For DM and DML:
Rate/Price Variance = (Actual Selling price - Budgeted Selling price) * Actual units sold

Efficiency Variance = (actual Quantity of Input used - Budgeted quantity of input allowed for actual output of units achieved) * Budgeted rate of input

For Variable Overhead:
VMOH Rate/Spending Variance= (Actual Rate - Standard Rate)* Actual Quantity

VOH Efficiency variance = (Actual Quantity - Standard Quantity)*Standard Rate

For Fixed Overhead:
FOH Rate Variance = (Actual Fixed Cost - Flexible Budget variable cost)

FMOH Volume Variance =Budgeted FOH - (FOH allocated to actual output - Budgeted FOH rate)

Level 4)
For DM and DML
mix variance = (Actual Input mix % - budgeted input mix %) *actual quantity of inputs used * budgeted rate

yield variance = (actual quantity of inputs used - Budgeted Quantity of inputs allowed for actual output of units achieved) * Budgeted input mix % * Budgeted rate of input

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Issue 1 - Google Doc: Yes, it would save the work of the part-creator and it is an excellent tool. My issue with a Google Doc is that there is no way for the T.A. to see the collaboration or who did what. We are supposed to collaborate within the padlet.

Mrs.Butler: "I would like everyone to be engaged together so if someone has already posted something then read that and your post should reflect what Oliver is asking as well as what other group members have already posted.  I.E. your comment might just be in response to a group member and not necessarily Oliver."

Issue 2 - Overlap: The way Oliver Question 2's 4 questions are divided, there should only be some overlap with the one other person working on the same part.

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I like the proposed format for splitting up the group work.

I think using a google doc could be beneficial. This would allow group members working on the same section to see what has been completed so far and prevent any overlap.

Additionally this could save the part creator some work by not having to compile everyone's information

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Question 2 – Assigned Parts

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Question 2 – Assigned Parts

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I’m not sure if everyone is on board but I have heard positive feedback from the 3 members that have replied so far, so I’m going to go for it. I’ll be the part-creator this week. It’s a pretty easy breakdown. Oliver asked 4 questions that are disconnected from one another. Therefore, 2 people per Oliver question makes sense to me:

Part 1 – Q1 (Moriah #1 and Farid #2)

Part 2 – Q2 (Chris #1and Paula #2)

Part 3 – Q3 (Cindy #1 and Corey#2)

Part 4 – Q4 (Ishaan #1 and Michaela #2)

The # is displayed because, when you post, you should specify your #. For example, Ishaan would title his post: Question 2 – Part 4 (1/2). Titling this properly is essential!

If someone responds to Ishaan’s post, they could title it Response to Question 2 – Part 4(1/2), Ishaan – XXXX, or really anything that will get his attention. This titling is not as critical.

After some time for collaboration and editing posts, I’ll make a cumulative post with 1-4 answered with the best sum of the parts. Of course, if anyone wants to see changes to that post as well let me know.

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Glad both of you are on board! I can be the part-creator for the next Oliver question and we'll see how it goes.

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Great idea! I'm down!

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Completely on board with Rowan's proposal and looking forward to using it in future assignments to Help Oliver.

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Hey guys awesome job so far at all getting involved and answering the questions! You all did a really good job of giving exmaples of companies who would use the different methods and some exmaples with numbers as well which helps get the concepts acorss. Remember, if you find a good website online that does a good job at walking through an example feel free to post the link. Rowan had a good suggestion to help all you of you guys out and to lighten your work load a little while making sure the question still gets done in detail. My only thing with that would be not to delete the individual parts at the end and make one big one. It is helpful for us to see all of the individual names and when they were posted, so feel free to use his approach but please keep all individual posts in the forum! Keep up the good work. :)

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I really like this idea! I think that we will be able to use this for theory based questions. However if the next time around Oliver comes with a practice problem then this wouldn't work, unless the problem has multiple parts. Also quick question for you, would the Question creator also be in charge of editing and putting together all of the parts? And maybe after we are done with all of the individual parts we can delete them from the padlet and submit one major super post.

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Ok, No worries Cindy. I have taken that section out. It’s basically the same now except that all responses would be titled ‘Response to Oliver Question X - Part X.'

Would you like to approach the questions with this revised system? There is no Facebook involved.

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I don't have facebook so that wouldn't work for me

But excellent idea Rowan!

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I believe we have 9 members (correct me if I'm wrong):

-Cindy

-Corey

-Hristijan

-Paula

-Michaela

-Moriah

-Farid

-Ishaan

-Rowan

Here's an idea for a system for answering future Helping Oliver Questions:

We each have an assigned role.

Question = when Ms.Butler posts (we have completed 'Question 1')

Part = division of question tasks

Part-Creator: each week this person reads the Helping Oliver Question (promptly!) and breaks it down into 1-8 smaller parts (preferably 8 if feasible). After all the parts are submitted and sufficient discussion has taken place, the PC combines the parts into one ultimate answer titled 'Oliver Question X - Cumulative' (Chris' idea - and a good one!)

If divided into only 2 parts, 4 members would each do the same part, if divided into 4 parts, 2 would each do the same part, etc. (and then collaborate)

Example of what the part-creator could do for Week 1:

CH4

1.    Give a basic explanation of why there ends up being over and under applied overhead?

2.    Give a detailed explanation of why there ends up being over and underapplied overherhead.

3.    Give an example of when a company underapplies overhead.

4.    Give an example of when a company overapplies overhead

CH5

5.     Give a basic explanation of the difference between ABC and traditional costing

6.     Give a detailed explanation of the difference between ABC and traditional costing

7.     Give an example of a company using traditional costing

8.     Give an example of a company using ABC costing

Of course, any member could ask to change any of the 8 parts if they can think of a part that could be asked more appropriately/logically. You could title this 'Issue re: Question X - Part X', for example (or anything that will get the attention of the part-creator). It would then be the duty of the part-creator' to change the part and/or reply to the member.

Everyone else:  You answer your assigned part (and respond to other's parts)

For example, if Moriah was #1, she would post a title of  'Question 1 - Part 1' with her response in the body:

Basic explanation: At the end of a period, there ends up being over- or under- applied overhead because of the difference in the budgeted amounts of overhead and the actual amounts of overhead.

If someone wanted to respond or elaborate on Moriah's post, such as if I wanted to ask: "What is overhead?" then I would title the post: 'Response to  Question 1 - Part 1.' (or, say, 'Response to Moriah'), titling doesn't matter so long as you can get through to person you're responding to

...

After reading responses to your part, you could edit elements and/or create new sections...

For example, Moriah could edit her post so that it now said:

Basic explanation: At the end of a period, there ends up being over- or under- applied overhead because of the difference in the budgeted amounts of overhead and the actual amounts of overhead.

AND

Rowan's Question: Overhead is the overall indirect cost of manufacturing.

...

Although excellent individual work, I think we’re giving Oliver (aka Julia, Shannon, and ourselves) a bit of information overload/redundancy this week.

I say everyone has a part they have to do, and if you want to do more (or, preferably, respond to another's Part), go for it! (just make sure you label your assigned part in the title)

I believe the benefits members would get from this approach include:

-A lighter workload
-More in-depth, concise information (i.e accessing a specific part of a question that you're having the most trouble with more easily)
-Greater clarity and communication
-Elimination of role-conflict and role-confusion (everyone has a specific responsibility)

Please let me know what you think of my proposal. To make things easier, if you are replying to this message, can you please start your title with ‘Rowan – XXXXX’

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I would prefer to use social media in order to communicate more frequently and make it easier to divide up tasks

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Dividing the tasks for future assignments

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Dividing the tasks for future assignments

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Hey guys, I completely agree with Hristijan!
My name on facebook is: Paula Boncan

We can split of questions and answer specific parts instead of us answering all of it so we avoid repeating the same concepts.

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I was about answer the questions but a lots of you had a lot to say and managed to put together some detailed answers. To be honest I don't have that much to add and I will try my best to be one of the first people to contribute for the next question.

Also would you guys be up for using social media in order to communicate more frequently when it comes to Helping Oliver and divide up the tasks?

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Hello! I think everyone has done an excellent job answering Oliver's questions. This is what I have come up with to help Oliver. Please let me know if you think something should be changed to better help Oliver understand the concepts.

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Hey everyone! I think all explanations so far are great! Here is my take on the questions

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Here is my continuation to Oliver's 2 questions!!!

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Hi group!
In addition to the content previously posted, I want to continue the topic on ABC and traditional costing.

Companies that produce identical/similar products and do not have a lot of non-manufacturing costs tend to use traditional costing since accountants will only account manufacturing costs to the product. A company such as The  David Roberts Food Corporation  which produces and packages peanuts fo the Blue Jays would use traditional costing. This is due to the fact the company uses minimal labour and a machine to package/sort its product.

However ABC allows companies who produce  specific products for specific customers to accurately account for their inventory. Due to the company's high indirect costs, traditional costing will not accurately represent the product's cost.  ABC takes every activity associated with producing a product and allocate the costs to the activity. Like Cody said, car companies such as Chrysler would benefit from ABC due to the many processes that come into making a car such as planning, desgining, trial and error, and the different stages of the product.