Module 10 Allocating Costs to Jobs and Processes Omar ElKheshen – kheshen@gmail.com 1 Learning Objectives By the end of this module you should understand: 1. The sources for costs of direct material, direct labor and overhead in the cost gathering process 2. The use of cost centers to gather overhead costs 3. The application of activity bases to spread overhead to products 4. The distinction between plant wide and departmental predetermined overhead rates 5. The costing issues involved in joint products and by-products 6. Process costing, its use of equivalent units and its two principal methods 7. The need to question the appropriateness of traditional cost drivers and the basic mechanisms of activity-based costing Omar ElKheshen – kheshen@gmail.com 2 Agenda 10.1 Introduction 10.2 Cost Gathering 10.3 Where Do these Costs Come from? 10.4 Plantwide versus Departmental Rates 10.5 Joint Products and By-Products 10.6 Process Costing 10.7 Process Costing and the Equivalent Unit 10.8 Cost per Equivalent Unit 10.9 Activity-Based Costing 10.10 Traditional Costing versus ABC Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 3 In module 9 we’ve covered different mutually exclusive cost categories Cost Categories: Variable & Fixed Direct & Indirect Traceable & Common Controllable & Non-Controllable Standard & Actual Product & Period Engineered & discretionary These categories are broad as they deal with total blocks of costs An early understanding of their characteristics allows the reader to gain a broad overview of costing and its potential impact on managerial behavior Omar ElKheshen – kheshen@gmail.com 4 No two businesses have identical costing systems because no two companies have identical accounting systems Part I Part II Financial Accounting Management Accounting No two companies select identical: No two businesses have identical: Principles Costing Systems Conventions Production Characteristics Presentation Modes Prod

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