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I am engaged in sale of footballs. It costs me $400 an order and the cost of a football is $10 per unit. I have a demand for 20,000 units per year. What should be the size of my order?

EOQ = SQRT(2 × 20,000 × 400/10) = 1,265 units

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Apologies for late help, Oliver! Busy time for us all:(

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Hey Oliver, since come of my group memebers did a great job in giving a detailed definition of the different transfer price methods I put together a chart that summarizes the difference between each one. I also included an additional example because you can never have to many.

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Although there's not much left for me to touch up on, here's an abstract of a study done comparing EOQ to JIT which says that although JIT leads to less
physical inventory space, EOQ is actually more cost effective
EDIT: never actually pasted the link http://www.tandfonline.com/doi/abs/10.1080/01446190500041339

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Hey Everyone, good job at starting to answer the question, remember that everyone should be contributing! Good job at bringing in some external sources, dont forget to have some examples for transfer pricing as well.

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To continue on what Samishka wrote, I'll hopefully give an accurate example of what I understand is how you calculate the transfer prices.

1. The minimum transfer price

Diesel engines made at Ford’s engine plant have a variable cost $500 to manufacture. Assuming they charge a mark up of $200 per unit, the minimum transfer price they would want to charge to an assembly plant within Ford is $700.

2. The maximum transfer price

Using the Ford example, if the same diesel engine could be bought on the open market for $800, this is the maximum an assembly plant would pay the engine plant.

The ideal transfer price would need to fall between $700 and $800 per engine because the engine plant would not sell below $700 (as they could receive a higher price externally) and the assembly plant will not pay more than $800 (as otherwise they could buy the engine cheaper on the open market).

For extra info on the above topic, and other costing topics, check out the website that explained to me the above: http://www.managementaccountingmastery.com/cima-p3-how-to-calculate-a-transfer-price-matts-complete-guide/

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EOQ takes into account the timing of reordering, the cost incurred to place an order and costs to store merchandise. If the company is constantly placing small orders to maintain a specific inventory level, the ordering costs are higher, along with the need for additional storage space.
You can read up on EOQ and this site has some examples
http://www.investopedia.com/terms/e/economicorderquantity.asp

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Chapter  19

Economic order quantity (EOQ) is the order quantity of inventory that minimizes the total cost of inventory management.  Example:

ABC Ltd. is engaged in sale of footballs. Its cost per order is $400 and its carrying cost unit is $10 per unit per annum. The company has a demand for 20,000 units per year. Calculate the order size, total orders required during a year, total carrying cost and total ordering cost for the year.

Solution: EOQ = SQRT(2 × 20,000 × 400/10) = 1,265 units

Annual demand is 20,000 units so the company will have to place 16 orders (= annual demand of 20,000 divided by order size of 1,265). Total ordering cost is hence $64,000 ($400 multiplied by 16).

Average inventory held is 632.5 ((0+1,265)/2) which means total carrying costs of $6,325 (i.e. 632.5 × $10).

Chapter 21

Market-based transfer prices: Transfer price is set at the market price - the price of a similar product or service that is on the open market. It can also earn the highest possible profit, rather than being subject to the odd profit vagaries that can occur under mandated pricing schemes.

Cost-based transfer prices : Transfer price is determined based on the costs of producing the intermediate product. This means that the final subsidiary that sells the completed goods to a third party will recognize the entire profit associated with the product.

Negotiated transfer prices : A negotiated transfer price comes from discussions between the selling and buying division. Individual divisions are free to negotiate the transfer price and also to decide whether to buy and sell internally or external. Transfer price amount may or may not resemble the cost or market data costs. Often used when market prices are volatile.

Upper limit (the max):  determined by the buying division

The lower limit (the min): determined by the selling division. Minimum TP = VC + lost CM

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https://www.youtube.com/watch?v=AYpjPWmlyHM
So I'm back with a video from the same channel as last week... It explains EOQ as well as the majority of the video is working through a practical example that is very helpful for seeing how the EOQ formula actually works. I found it very handy so hopefully it helps!

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Trying my best to add to what you guys have already, this video talks about the ford f150 production and spoilage and rework costs. Its a theory heavy video but it has the real life component https://www.youtube.com/watch?v=Fte2o9_v-T0

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Looks like my team has all hit some great points! More specifically Alex and Sidik have great answers on spoilage which is why I will just give more input on the transferred in costs...
You say you are confusing the costs with beginning inventory, this is fair since the department will in a sense recognize the costs at the beginning of production. They differ however in that beginning inventory would be units/material already held in one department that have not transferred. On top of these beginning inventory that the department has, they will get costs from A DIFFERENT department that they will also need to take into account related to the past department production.

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https://www.youtube.com/watch?v=guZc84c5HNI
While the video doesn't actually touch on transfer-in costs until near the end, it does so within a full process costing example that actually makes the transfer costs seem very simple. Hope it helps!

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Hey Oliver, I've attached a document summarizing some information I find helpful regarding Transferred-In Costs. Hope it helps!

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Spoilage refers to output that fails to attain either a specified performance level or standard of composition. A really good example is an overcooked meal cannot be served to a customer, and so is instead classified as spoilage

Rework is the conversion of production rejects into reusable products of the same or lower quality. An example of this is leftover ground raw poultry that can be cooked and processed into chili.

This website should also help in accounting for spoilage and reworked in a job-costing system. It goes over the necessary journal entries that are needed.

http://nraomtr.blogspot.ca/2011/12/costing-for-spoilage-rework-and-scrap.html

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Good job with the evaluation but we can still improve, lets aim for that 10 guys!!! So to move forward lets all try to input something every week within a few days of when the question is proposed. Continue with the videos and diagrams and if you feel like the questions are answered just give a positive feedback on what is answered. Keep you the great job!!

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Here are some advantages and disadvantages that companies need to analyze when deciding which costing system to use

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Hi Oliver:

To understand the difference more conceptually, think about the difference in terms of how the company reports.

Absorption costing would allow a company to hold onto inventory costs and furthermore delay expenses in the current period.

Variable costing on the other hand only capitalizes variable costs and therefore does not capture the fixed costs in inventory but rather expenses them in the current period.

Either option is not better than the other but rather beneficial for reporting preferences

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Real world example of Absorption Costing

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Real world example of Absorption Costing

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While the article is a little dated, it provides a very good real world example of Absorption costing in practise. Using "The Big 3" in the auto industry it shows how absorption costing has been used, and the effects the method will have quite nicely.
http://ww2.cfo.com/management-accounting/2012/02/why-the-big-three-put-too-many-cars-on-the-lot/

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Absorption vs Variable Costing Differences

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Absorption vs Variable Costing Differences

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Hey Oliver! I found determining some of the key differences between absorption and variable costing helped me! I've attached a picture highlighting the main differences from the explanation Prof. Butler gave us! Hope it helps :)

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This video explains both absorption costing and variable costing in simple manner, with example.

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This video explains the difference between Absorption Cost and Variable Costing in the context of managerial accounting. The key functional difference between these two methods is the way in which fixed overhead is classified, and the video provides an example to illustrate how this difference leads to substantial discrepancies in the calculation of product costs, cost of goods sold, and profitability.

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Hey Everyone, good job so far at answering the question. Remember that everyone should be contributing to fully answer the question and give some examples! Alex had a good idea for splitting up the work to help everyone out so maybe give that a shot. :)

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I see you are having trouble with fixed overhead variance. This visual helped me

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Here is what normal and standard costing as well as what is the difference between the two

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The video is a good quick "review" on variances, it helps you think logically as to which variance it is. Also it quickly talks about why we look at variances and their use.

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Cost Accounting, Material and Labor Variances

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From the BEC section of the Roger CPA Review course, this lesson introduces Cost Accounting and Performance Measurement. Connect with us: Website: https://www.rogercpareview.com Blog: https://www.rogercpareview.com/blog Facebook: https://www.facebook.com/RogerCPAReview Twitter: https://twitter.com/rogercpareview LinkedIn: https://www.linkedin.com/company/roger-cpa-review Are you accounting faculty looking for FREE CPA Exam resources in the classroom?

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Following Alex's lead to break up the questions and examples... from what we've seen so far the difference between the Static and Flexible budgets can be understood as:
The Static Budget acts as the "Master budget in the sense that it is sort of the benchmark moving forward. Once it is set we do not change it even if / when circumstances change. In contrast the flexible budget is adjusted as output levels change. This means that actual revenue and cost drivers which were originally budgeted at one level can shift up / down based on the situation. Since we're adjusting budgeted results into actual results using the same levels for each we can get a meaningful comparison between the two.
i.e Flexible budget >>> Static budget for usefulness

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Hey guys so this week there questions are quite big. There is 4 questions and nine of us so why not have 2 people per question  (one explains topic other does examples) and then the one with the video there can be three people. I will start on question 2!

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Hey guys, good job with the responses so far. Make sure everyone is adding a little bit in to help each other out! Also for future, maybe try adding in an example with numbers to further explain the concepts or find a website that does a good example and post the link!

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i think for this one we can just combine our work after, because there seem to be similar way you can answer those questions and delete the rest. For future we could maybe assign the question.

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Answer to Question of Chapter 4: In most of business, the over or under-applied manufacturing overhead is common due the practice of estimating the overhead. As the beginning of the period it is applied to work in progress using estimates form previous period or historic information and by end of the period the actual amount incurred during the period is recorded, which can be less or more than the estimates.

Answer to question from chapter 5: The difference between Traditional costing and ABC are:
Traditional costing have simple allocation of costs, it records indirect costs to products based on predetermined overhead rate, it is more easy and less time consuming but, less accurate than activity based costing. So there is more chances of under and over-applied overhead occurring, whereas in ABC, takes more factors of indirect costs into account like non-manufacturing expenses . It’s complex and time consuming, but more accurate.

Example of ABC; health care, They have many activities within hospital or clinics going in, they can allocate different rates to different service on the basis of their actual utilization.

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Ch.4 Question:
In the business world, companies who are looking for suppliers often would like to know the cost of what they are buying before they buy it. Because of this, companies require a quote from the supplier for the product or service and in this case the supplier needs to ESTIMATE what the overhead cost will be in order to price the work. Assuming that you are comfortable with finding the allocation rate, you should be aware that there is an estimated allocation rate for this exact situation....Once the supplier completes the work, they will probably realize that what they estimated for the cost is not exactly what they incurred. In this case the company needs to correct the amount they estimated for a more accurate amount on their financial statements.

Ch.5 Question:
The main difference is that Traditional costing uses 1 allocation rate to find an overhead cost for a product whereas ABC uses multiple allocation rates for each supply chain activity cost. This proves to be a more accurate measure of overhead than the Traditional measure.
Example of ABC - Car Manufacturer, They would have many different activities that could be separated with allocation rates therefore it would be difficult to estimate one rate over every activity

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Alex I think you are right in that we should develop a strategy for answering these questions...i think for now if we all just click the + sign at the bottom in order to have our comments show up in the left hand corner in order that is alright for now...this way we can build on others answers

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Hey group! Any ideas/ a plan how we should answer the questions for this week but also throughout the semester?

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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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I'm Han, 3rd at Carleton. Nice to meet you guys. I'm ready to help Oliver with you guys!

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I'm Mario, 3rd year accounting student, little late but ill make up for it. pic unrelated

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I look forward to working with you all this semester. Thank you for everyone posting their introductions and great job at encorporating pictures into them! Keep this up during the semester and remember that you can add different forms of media in here as well like videos and links to websites that you found useful and relevant to the course matieral!

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I'm Jess, finishing up my fourth year in accounting. Admittedly been a while since I've done cost accounting but looking forward to helping out and working together.

I tried in vain to just use this as a profile picture but it wouldn't work, so the ridiculous big version it is :)

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My name is Samiksha. I am in 3rd year accounting. I am looking forward to helping you.

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Hi Oliver,
My name is Alex and currently in 3rd year with a concentration in accounting. Looking forward on helping you out throughout the semester!

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Hey Oliver, My name is Sidik and I'm currently in third year concentrating in accounting. I'm looking forward to answering your questions and helping out.

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My names Sydney and I'm in third year studying accounting. Can't wait to help out with cost accounting.

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I'm David, in my third year at Carleton, majoring in accounting and marketing, looking forward to helping out here.

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I'm Alex, 4th year finance student. Nothing gets by me, Oli, I'll get you that A+