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Hey everyone, great job at answering the question so far as a team! I like how you've also broughten in lots of external sources, keep up the good work.

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Economic Order Quantity is the number of units that a company should add to inventory with each order to minimize the total costs of inventory such as shortage costs, order costs and etc.
The following is a video of how to calculate EOQ.
https://www.youtube.com/watch?v=YWi-JqaO1W

The three methods of transfer pricing are:
Market based transfer pricing: The price is set at the market price-  the price of a similar product or service that is on the open market. It should be used when there is a market for the product and the selling division has no idle capacity.

Cost based transfer pricing:
Transfer price is determined based on the costs of producing the intermediate product. It should be used when there is no market prices or the market price is inappropriate.

Negotiated Transfer Pricing:
A negotiated transfer price comes from discussions between the selling and buying divisions. It should be used when the market prices are volatile.
Minimum transfer pricing is the addition of incremental cost/unit incurred up to the point of transfer and opportunity cost/unit to the supplying division.
The maximum transfer price is the amount that the buying division is willing  to pay to the outsider.

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For market-based transfer pricing, it lead to optimal when: 1. the market for the intermediate product is perfectly competitive.( buying price=selling price)
2. Minimal interdependencies of divisions
3. No additional benefits or costs to the company from buying or selling externally.

Here is a article example for minimum transfer price.
http://www.investopedia.com/ask/answers/063015/how-minimum-transfer-price-calculated.asp
Here is an article for Maximum transfer price. Hope you find them helpful.
http://www.dummies.com/business/operations-management/how-to-negotiate-a-transfer-price/

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Here is a youtube video of an example of EOQ where the teacher explains you the meaning of the word and then goes over one example explaining how to calculate it! It helped me a lot to understand it so here it is! https://www.youtube.com/watch?v=A88uoWbxG2M
I see the rest of the class have gave you a lot of definitions for the transfer pricing methods! I will try to do a bit more research to find some good examples of each one and post it here so you can watch them and understand it a bit better!

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Economic Order quantity (EOQ) provides management with the ideal quantity that minimizes the cost to order and hold inventory.

EOQ is the square-root of 2DP/C, where D is the demand for a specified period, P is the order costs per purchase order and C is the carrying costs of one unit in stock for the time period used in for D.

Here is an Investopedia vedio that further explores this calculation!
http://www.investopedia.com/video/play/economic-order-quantity-eoq/

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There are 3 Transfer Price Methods:

1) Market-Based Method is when the transfer price is set at the market price from competitors or trade associations. Market based pricing is often viewed as the best approach however not always used as there isn't always a market for intermediate products. Market-based pricing works best when the selling division has idle capacity and doesn't work when the selling division doesn't have idle capacity.

2) Cost-Based Method is when the transfer price is determined by the cost of producing the intermediate product. There are several variation of cost-based pricing however full costing is the most commonly used variation of cost-based pricing. Cost-based pricing is useful when there is no market price or the market price is too costly to obtain.

3) Negotiated Method is when the transfer price is negotiated between the selling and buying divisions. The negotiated price may or may not resemble cost or market data costs. The negotiated method is often used when market prices are volatile.

Here is an article that explains the 3 methods in fuller details with an example:
http://www.personal.psu.edu/sjh11/BA521/NEW/Class08/TransferPricing.pdf

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EOQ (Economic Order Quantity) is a decision model that calculates the optimal quantity of inventory to order. The EOQ model is used when inventory is low and can be used under a the following assumptions: same quantity is ordered at each reorder point; demand, purchase-order lead time, ordering costs and carrying costs are certain; quantity ordered does not affect the purchasing cost per unit; not stockout; and costs of quality and shrinkage are only considered if they effect ordering or carrying costs.

Here is an example of EOQ:
https://www.youtube.com/watch?v=0erRMt8zHQc

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Transferred in costs are costs incurred from the previous department that are carried forward to the next process in the production cost. For example, if an manufacturing company has 3 internal departments, the first department in the production process wouldn't incur any costs as its the beginning. However, the 2nd department would incur any costs 'transferred in' from the 1st department and the 3rd department would incur any of the costs incurred and accumulated from both the 1st and 2nd department.

Spoilage and rework are both costs that come about because of inefficiency and defects during the production process. Spoilage are units of production that do entirely meet the specifications by customers for good units. They are usually discarded or sold at lower quality value. There is both Normal and abnormal spoilage. Normal spoilage can be inherited in a particular production process, typically included as a component of the cost of good units. However Abnormal Spoilage cannot be inherited. Rework is an unacceptable unit of production that can be repaired and sold at lower quality price.

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Transferred-in cost is always 100%. The amount of transferred-in equal to the amount transferred-out.

Here is a example of a actual problem of transferred cost under FIFO method
https://www.youtube.com/watch?v=_H22Zw0KI1M

Here is one uses weighted average method.
https://www.youtube.com/watch?v=2vX4CCcVbCo

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Hey Ollie!

I found a great link with a perfect example to help you understand spoilage and rework better.

http://www.dummies.com/business/accounting/cost-accounting-spoilage-and-process-costing/

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Transferred in Costs:  Costs that are incurred in the previous departments that are carried forward to the next process in the production cycle. The way to deal with them in bigger costing problems is that the cost will be transferred from one department to another but it only applies to similar products production.

Spoilage:Spoilage is that part of the final produce that does not adhere to the specifications given by the client and is therefore not accepted by them.

Rework: Rework is that part of the final produce which has not been accepted by the client because it does not meet the required specifications. However, those specifications can be met by working on the item once again.

The difference between rework and spoilage is that, rework will be reworked on and sold at full price whereas spoilage is considered to be defective goods and is discarded at throw away prices in the market

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Hi Oliver,

I am going to start by answering your first question about what transferred costs are!

So, as units move from one mfg. department to the next, their costs per EU move with them. These costs are "attached" to the products. Furthermore, the costs that are incurred in the previous departments are carried forward to the next process in the production cycle. These costs that are being carried forward are what is known as transferred-in costs.

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Static Budget: In static budget the level of output is not changed once it set if circumstances change.
Flexible Budget: Any changes in the actual level of output, actual revenue and cost drivers are adjusted and a new budget at the adjusted level is made.

Normal Costing: Normal costing is used to value manufactured products with the actual materials costs, the actual direct labor costs, and manufacturing overhead based on a predetermined manufacturing overhead rate.

Standard Costing: Standard costing values its manufactured products with a predetermined materials cost, a predetermined direct labor cost, and a predetermined manufacturing overhead cost. In standard costing we will be using more than one rate in comparison to normal costing.

All the Variances:
FMOH Variances: FMOH static budget variance is the same as FMOH flexible budget variance since a fixed cost is fixed.
FMOH Budget Variance: Actual costs subtracted from budget amount.
FMOH Volume Variance:
Budgeted FOH - (FOH allocated to actual output X Budgeted FOH rate)

VMOH Static budget Variance:
Actual results  - static budget amount

VMOH Flexible budget variance:
Actual results - flexible budget amount

VMOH Sales Volume Variance:
Flexible budget amount - static budget amount

VOH Rate Variance: (AR - SR) AH
VOH Efficiency Variance:
(AH - SH allowed) SR
Here is a link of a video the explains all the variance very well.
https://www.youtube.com/watch?v=kZBnLVyVCQA

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Hi Oliver, you already have some good answers. Here is a video that explain the difference between absorption costing and variable costing. In the video, there is also example of the different calculation methods of the two costing system. Hope you find that is helpful.
https://www.youtube.com/watch?v=ApRSgmnnEjI

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The main difference between absorption and variable costing is the timing of when fixed manufacturing overhead (MOH) is applied to Cost of Goods Sold (COGS).  Under absorption costing, the fixed MOH is capitalized.  This means that this cost is not applied to COGS until the inventory is sold.  Under Variable Costing, the fixed MOH is expensed and classified as a period cost.  This means the fixed MOH is immediately applied to COGS as part of the current period.  The overall effect of these different applications is a difference in income for the current period.

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Good morning Oliver,

Absorption costing, also known as full costing, capitalizes all variable and fixed manufacturing costs and then expenses all period costs which includes variable and fixed non-manufacturing costs.

Product costing, also known as direct costing, only capitalizes variable manufacturing costs and expenses all fixed and all non-manufacturing costs.

These two costing methods will result in different operating Income. The difference is the amount of fixed product costs that are capitalized under absorption costing and expensed under variable costing.

Below I attached a screen shot from Professor Butler’s slide deck. It really helps me to differentiate where fixed costs belong on the income statement under both costing methods!

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hey buddy I hear you having trouble understanding when to use normal and actual costing. Normal costing uses a predetermined annual overhead rate to assign MOH to products. While actual costing uses each month's actual costs and each month's actual production volume are used to assign overhead costs.
Watch this video if u want to see actual examples of it. its pretty easy to understand once u get some practice https://www.youtube.com/watch?v=54zhPA5QUws

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Hey everyone, good job so far at answering the question and each trying to address a part of a question as opposed answering it fully which can get repetitive! Remember for the rest of the group to contribute to fully answer all aspects of the question and build on others responses.

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-- Static budget variance is equal to flexible budget variance
-- Sale-volume variance and efficiency variance never a variance because fix cost stay fix.
-- The entire budget variance is attributed to rate variance, cannot be breakdown.
-- Volume variance is the difference between actual & applied.
-- If OH is under applied, variance is unfavourable.
-- If OH is over applied, variance is favourable.

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The Standard Costing Method uses a predetermined average cost per input or a predetermined average total input cost per unit of output, where as, the Normal Costing Method applies a standard or predetermined or budgeted indirect cost-allocation rate to assign overhead costs but actual direct cost rates to assign direct costs.

Below is a link to further distinguish between the two approaches!

http://www.accountingcoach.com/blog/normal-costing-standard-costing

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- Flexible Budget is a budget that adjusts for changes in volume of activity. It is more useful than the static budget which remains the same amount regardless of the level of activity.

For example: budgeted amount per year for sales commission expense.
Under Static Budget: the budget remains at $500,000 regardless of the actual sale (even if the actual sale is 2M, 3M or even 10M!)
Under Flexible Budget: sales commission expense might be expressed as 4% of sales (so the commission changes based on actual sales)

Here's two more examples:
1. http://www.accountingcoach.com/blog/what-is-a-static-budget
2. http://www.accountingcoach.com/blog/flexible-budget

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Since we use estimates under the normal costing, at the end of the period the amount of overhead in the inventory account will either be too little or too much. Therefore, we will end up either with over applied OH or under applied OH. The following is a video that will give you a good understanding of the over applied and under applied.
https://www.youtube.com/watch?v=k0UeFXoAv0A
For understanding the differences between traditional costing and ABC costing, please click on the following link: https://www.youtube.com/watch?v=JKio_bypTRI

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If you are looking for some ABC costing examples that would help you understand go to this webside http://yourbusiness.azcentral.com/types-businesses-activitybased-costing-28437.html and it give you a couple ideas of the type of Businesses that use ABC!

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Take a look and let me know if it helps you out

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I found two videos that might be able to help you understand these concepts a little better. Good luck!

Chapter 4: https://youtu.be/FkS_mbt7f6k

Chapter 5:
https://youtu.be/aDycx2hJ6tg

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Ch4: If MOH costs applied to WIP is MORE than the MOH costs actually incurred during a period we get OVER-applied MOH. Conversely, if the MOH costs applied to WIP is LESS than the actual MOH applied we get UNDER-applied MOH.
I found a website that gives good explanations with examples for this topic.
http://www.accountingtools.com/questions-and-answers/what-is-under-absorption-and-over-absorption-of-overhead.html

Ch5: Traditional costing assigns MOH based on volume of cost driver (for example: DL hours, machine hours to produce an item).
On the other hand, ABC assigns MOH cost based on various activities needed to produce an item (example: machine setups)

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Hey guys, good job so far at answering the questions, make sure all group members are adding something to help each other out. Maybe try encorpoating some examples to further explain the concepts. If you find a video or website that explains something really well feel free to post that as well!

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Oliver ... it looks like you've already got some good answers. You might be wondering why wouldn't a company just wait until the end of a period and use the actual numbers (then you wouldn't have to deal with over or under applied OH). Well, managers like to have the estimated OH so then can make decisions during the period if needed. That actually leads us into your second question. If a company is using traditional costing instead of ABC and if they are making 2 different products, product A might be using more indirect OH than product B. However, since traditional costing would split the OH evenly between the two products this could lead to errors in management decisions (ex. underpricing product A and overpricing product B). This is why some companies use activity based costing as it gives more accurate information.

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Chap 4: To add to what Shaoqing said, if the manufacturing overhead cost applied is greater than the manufacturing overhead cost actually incurred during a period, the difference is known as over-applied manufacturing overhead. Conversely; if the manufacturing overhead cost applied to WIP is less than the manufacturing overhead cost actually incurred during a period, the difference is known as under-applied.

Chap 5: Most companies in industries that incorporate a variety of inputs into the creation of the goods or services they sell will use activity based costing such as manufacturing or construction companies.

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My name is Sarah. I graduated from the accounting program at Algonquin College and now I am planning on doing a BCOM at Carleton. I look forward to working with all of you.

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Over & under applied

Under normal costing, company use estimated figure to allocate cost. The result will be not accurate (too much or too little), so will cause over applied and under applied.

Traditional costing & ABC

Traditional costing use one uniformly rate to allocate indirect cost to all the products regardless of how they actually use. It is not the most accrual way, will causes overcosting and undercosting. ABC uses multiple OH allocation rate to assign OH to specific activities. It has the more accrual figure.

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Oliver came to my office today for some help... please watch the video and work together to help him!  Here is a summary of his questions:
CH 4: understanding conceptually why there ends up being over or under applied OH (walk through the process)
CH 5: Difference between traditional costing and activity based costing & examples of companies that would use ABC.

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Hey guys, my name is Dilan and I am a fourth year accounting student!. Looking forward to be able to work together and help each other out. Cheers 

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Hey guys, my name is Dilan and I am a fourth year accounting student!. Looking forward to be able to work together and help each other out. Cheers 

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My name is Hewad Habib and I am a third year accounting student. I like group work. So, looking forward to work with you guys.

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Hey guys! Sorry for posting this late, I just recently joined this course :D My name is Maram and I'm a third year accounting student. I'm looking forward to working with you all!

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Hi guys! My name is Katherine Beltran and I am a fourth year student in Computer Science Minoring in Business. I look forward to working with you all this semester. :)

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My name is Shaoqing Liu you guys can call me Lydia. I am sorry for the late posting. I am a third year accounting student. Look forward to working with you to help Oliver!

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I look forward to working with you all this semester. Thank you for everyone posting their introductions.  Remember that you can add different forms of media in here like videos, pictures, and links to websites that you found useful and relevant to the course matieral!

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Hi Group.  My name is Brad...looking forward to working with you.

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Hi Group.  My name is Brad...looking forward to working with you.

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My name is Chris Satterthwaite as you can probably see from above. I'm a third year accounting student who loves music, sports and long walks on the beach. I look forward to working with all of you! :)

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Hi ... My name is Jason Brunet and I am a mature student. I have a BSc in Chemistry and my DDS from Western. Embarking on a new career path and I'm looking forward to getting to know our group!!
Cheers.

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My name is Marianna Marano and I am a third year accounting student. Below I have attached a collage of words that include some of my interests and adjectives that I think best describe me! I look forward to working together with you all this upcoming semester to help Oliver!