Costs, Common Costs, and Revenues

8/9/2019 Costs, Common Costs, and Revenues

1/64

Create Overhead Cost Pools

Through OraclesMassBudgets & AutoAllocations

tlanta - O UG

tlanta - O UG

November 21, 2003

ovember 21, 2003

Presenters:

Michael Anenen & PaulMichael Anenen & Paul

KraskiewiczKraskiewicz


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Presentation Agenda

1 Assess & !esign

Overhead Allocation Methods

Standard Cost Overhead Sub-elements

" Oracles Overhead A##lication Basis T$#es

% Cost Pool Allocation Process

'sing Oracles MassBudgets &AutoAllocations

( )uestions & Answers


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Presentation Agenda

1 Assess & !esign








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Assess & !esign

!eter*ine $our Allocation Method

TraditionalActivity-Base Costing

Overhead +u,-.le*ents Material Overhead

Resource / e!artment Overhead

Start with the End in Mind


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Assess & !esign


Traditional

Activit$-Base Costing

Overhead +u,-.le*ents

Material Overhead

Resource / e!artment Overhead


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Basic Princi#als "stimate overhead costs #or the coming year

"stimate activity #or the coming year Calculate a!!lication rate as

.sti*ated Overhead Costs / .sti*ated Activit$

A!!ly overhead using actual activityand thea!!lication rate$

%# actual overhead & a!!lied overhead' thedi##erence is under-applied$

(nder-a!!lied overhead reducesincome


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Activit$-Based Costing

Multi!le Activity BasedRates )er e!artment

Traditional

Single )lant-*ide Rate Single Rate )er

e!artment


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Traditional AllocationAll overhead costs are

a!!lied using the samerate$

Activity is measured +ith

a single conce!t' such

as,

irect labor hours

irect labor dollars

Machine hours

Advantages: Sim!le Arithmetic

"asy to understand !isadvantages:

ittle relationshi!

bet+een costs and

activities Can lead to !oor

business decisions


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Activit$ BasedAllocation

Overhead costs aredivided into cost !ools$

"ach cost !ool has its

o+n activity measure

.cost driver$ 0umber o# !urchase

orders

0umber o# setu!s

Advantages: Closer causal lin1s

bet+een costs andactivity

Better costallocations

!isadvantages: Com!le2 calculations

3igh start-u! costs


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APP0CAB0T2 O3 O4.56.A!

A00OCATO7 M.T6O!+Method ofAssigningOverhead

Type ofAllocations

Number of

Stages

Basis ofOverhead

RatesWhen Applicable

Single )lant*ide Rate

4rom a singleaggregated cost!ool' to !roducts

A !roductionvolume relatedactivitymeasure' e$g$'direct labor

hours or dollars'machine hours'etc$

)lant !roduces onlyone' or a #e+ similar!roducts that consumeall indirect resources inthe same !ro!ortions'

e$g$' )roduct 5consumes 678 o# eachindirect resource in the!lant$


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Type ofAllocations

Number ofStages

Basis ofOverhead


Single Rate)ere!artment

4rom servicede!artments' to!roducingde!artments9 singlecost !ools .overheadaccounts' to!roducts

A !roductionvolume relatedactivitymeasure$ Thesemay be di##erent#or eachde!artment

"ach de!artment!roduces only one' or a#e+ similar !roductsthat consume all o# ade!artment9s indirectresources in the same!ro!ortions' e$g$')roduct 5 consumes:78 o# all indirectresources ine!artment A' 678 o#all indirect resources in

e!artment B' etc$


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Type ofAllocations

Number ofStages

Basis ofOverhead


Multi!leActivity BasedRates )ere!artment

4rom servicede!artments' to!roducingde!artments9 activitycost !ools' to!roducts

Bothproductionvolumerelated andnon-production

volumerelatedactivitymeasures,e.g., numberof purchase

orders,number of

"ach de!artment!roduces many!roducts that consumeresources +ithin eachde!artment in di##erent!ro!ortions' e$g$'

)roduct 5 consumes;78 o# the !o+er' 6


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Assess & !esign


Traditional

Activity-Base Costing

Oracle Overhead +u,-.le*ents

Material Overhead

Overhead


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Oracles Cost .le*ents

Material

5esource

OverheadOutside

#rocessing

Material Overhead

5esource


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Oracle Cost .le*ents

Material Overhead & Overhead Overhead 85esource9:

This is the overhead cost o# resource andoutside !rocessing$ Overhead is used as ameans to allocate indirect !roduction costs$

Material Overhead:

This is the overhead cost o# material'calculated as a !ercentage o# the materialcost or as a #i2ed charge !er item' lot' oractivity$


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Overhead +u,-.le*ents

Materialoverhead

Materialoverhead

5esourceoverhead

5esourceoverhead

MaterialMg*t

MaterialMg*t 3acilit$

3acilit$

3reight-n3reight-n BeneitsBeneits

ProductionControlProductionControl

ndirectndirect

M3;.ngngM3;

.ngng

Overhead Cost

+u,-.le*ents

Overhead Cost.le*ents


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Presentation Agenda

6$ Assess = esign




;$ Cost )ool Allocation )rocess

>$ (sing Oracle?s MassBudgets =AutoAllocations


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Oracle

A##lication Basis T$#es Activity: irectly associate the activity cost +ith the item$

Item:Assign a #i2ed cost !er item$

Lot:Assign a lot charge to items and o!erations$ Resource units: Charge overhead by multi!lying the

overhead amount by the number o# resource units earned

in the routing o!eration$

Resource value: Charge overhead by multi!lying theoverhead rate by the resource value earned in the routing

o!eration$

Total value: Charge overhead by multi!lying the total cost

o# the item by the material overhead rate$


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Overhead A##lication

Basis T$#e 8.


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Oracles OverheadA##lication Method 8.ork Orders9

A*ount #er te*

Based on Activit$

3acilit$ 5esource 4alue

8ie 0a,or Cost9

+ingle 5ate

Per !e#art*ent

Beneits 5esource 4alue

8ie 0a,or Cost9

+ingle 5ate

Plant->ide

M3;

.ngineering

5esource 'nits

8ie +td 6ours9

+ingle A*ount

Per !e#art*ent

ndirect 5esource 4alue

8ie 0a,or Cost9

+ingle 5ate

Per !e#art*ent


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Overhead 5ates Assigned


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Overhead Cost A##lied

To te* 8.


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7eed Overhead Cost Pools

Material Overhead 5esource Overhead

Material

Manage*ent3reight-n

Production

Control3acilit$ Beneits

M3;

.ngineeringndirect

A*ount Per

te*8Activit$9

+ingle 5ate

8Bu$ te*sOnl$9

A*ount Per

te*8Activit$9

+ingle 5ate

8Per !e#t9

+ingle 5ate

8Plant->ide9

+ingle A*t

8Per !e#t9

+ingle 5ate

8Per !e#t9

Overhead Cost Pools !ollar?

@@@ @@@ @@@ @@@ @@@ @@@ @@@

Activit$ / 4olu*es7u*,er oPurchase

Orders

Total ?4alue o

Bu$ te*s

7u*,er o>ork

Orders

5esource ?4alue

5esource ?4alue

5esource'nits

8+td 6ours9

5esource? 4alue

5ates or A*ounts

?? ?? ??


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Presentation Agenda

6$ Assess = esign



:$ Oracle?s Overhead A!!lication Basis Ty!es


>$ (sing Oracle?s MassBudgets =

AutoAllocations


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Cost Pool Allocation

+te#-!own Allocationndirect Overhead

3inance & +Budget

OverheadCost .le*ent Pools

3acilit$Budget

Ad*inistrationBudget

Manuacturing Organization!e#art*ental Budget

Material OverheadCost .le*ent Pools

MaterialMg*t

3reight-nProduction

Controlndirect

M3;.ngng

Beneits3acilit$


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Man$ !e#art*ents

6 u * a n

5 e s o u r c e s

P r e s i d e n t & C . O

4 P 0 e g a l

A d * i n i s t r a t i o n

B u d g e t

M a n a g e r

o : 3 a c i l i t i e s

. u i # * e n t

M a i n t e n a n c e

B l d g & ; r o u n d s

3 a c i l i t i e s

B u d g e t

4 P 3 i n a n c e

a n d C 3 O

A c c o u n t i n g

P a $ r o l l ! e # t

1 n : o r * a t i o n + $ s t e * s

3 i n a n c e & 1 +

B u d g e t


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Man$ !e#art*ents

4 P M 3 ;

P u r c h a s i n g

5 e c e i v i n g

> a r e h o u s i n g

& + h i # # i n g

M a t e r i a l

M a n a g e * e n t

P l a n n i n g

+ h o # 3 l o o r

C o n t r o l

P r o d u c t i o n

C o n t r o l

P r o c e s s

. n g i n e e r i n g

1 n d u s t r i a l


M a n u : a c t u r i n g


M e t a l

P l a t i n g

3 a , r i c a t i o n

! e # a r t * e n t s

P C B

+ u , - A s s e * , $

3 i n a l A s e * , l $

T e s t

P a c k i n g

A s s e * , l $

! e # a r t * e n t s

M a n u : a c t u r i n g O # e r a t i o n s


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ndirect OverheadWhat Is The ProcessWhat Is The Process

3inance & +Budget

OverheadCost .le*ent Pools

3acilit$Budget

Ad*inistrationBudget

Manuacturing Organization!e#art*ental Budget

Material OverheadCost .le*ent Pools

MaterialMg*t

3reight-nProduction

Controlndirect

M3;.ngng

Beneits3acilit$


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+u**arize

Agenda te*s 1-"-%1 Assess & !esign








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+u**ar$ - Agenda te*s 1-"-%

!esign assess*ent Kee# the .nd in Mind

Overhead allocation #rinci#les

Allocation Methods: Traditional vs Activit$and the advantages and disadvantages

The a##lica,ilit$ o overhead allocation*ethods

Oracles cost ele*ents: MO6 & 5O6 Oracles a##lication Basis T$#es

+te#-down allocation #rocess


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Presentation Agenda

6$ Assess = esign



:$ Oracle?s Overhead A!!lication Basis Ty!es

;$ Cost )ool Allocation )rocess

'sing Oracles MassBudgets =AutoAllocations


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Oracles MassBudgets

!einition A eature that allocates e


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MassBudgets vs MassAllocations

>hat is the !ierence@

+a*e 3unctionalit$

MassAllocations Balance T$#es:Actual

"ncumbrance

MassBudgets Balance T$#e Budget only


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MassBudgets MaEor 3eatures

Allocate cost #ools to *an$ accounts using a singleor*ula

Base $our allocations on Current PeriodD PreviousPeriodD or 2ear AgoD +a*e Period

Base $our allocations on *onetar$ or statistical account,alances

!eine $our allocation or*ulas onceD and use the* asreuentl$ as needed

5un MassBudgets *ulti#le ti*es without reversing the

outdated a*ounts 'se MassBudgets to do rate-,asedD usage-,ased andste#-down allocations

nclude su**ar$ accounts or oreign currenc$ a*ountsin $our allocations


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MassBudgeting Process

+te# ": Co#$ O#erating

Budget to Cost PoolBudget

+te# : 5eviewand deter*ine

Allocation or*ulas

+te# F: ;enerateMassBudget Eournals

and Post

+te# 1: !eineCost Pool Budget

+te# (: CreateMassBudget ,atches

+te# %:;ather Allocation

Bases 8+tatistical !ata9

+te# G: 4alidateMassBudget Batch

or*ulas

+te# H: !eine a

MassBudget or*ula#er ,atch


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+te# 1:

!eine Cost Pool Budget

Create a ,udget to re#resent a collection oesti*ated a*ounts or a range o accounting#eriods 2ou can use AutoCo#$ to create a new,udget ro* an e


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+te# ":

Co#$ O#erating Budget A*ounts

1 6it AutoCo#$ Button" +elect+ource Budget


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+te# %:

;ather Allocation Bases8+tatistical !ata9

5eview all reuired statistical accounts andenter additional values into the Account+eg*ent 3or e


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+te# :

!eter*ine Allocation 3or*ulas

5eview $our reuire*ents and deter*inethe allocation or*ulas 3or e


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+te# (:

Create MassBudget Batches or.ach +te#-0evel

;rou# MassBudget,atches ,$ allocationlevel

This assures accuratecost #ools


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+te# H:

!eine MassBudget 3or*ulas


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+te# G:

4alidate MassBudget Batch 3or*ulas Ater $ou deine a new

allocation ,atchD orchange an allocation

or*ulaD $ou *ustvalidate the ,atch ,$running the MassBudget4alidation #rogra* The#rogra* veriies that

$our allocation or*ulasconor* to theallocation or*uladeinition rules


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+te# F:

;enerate MassBudget Iournals 'sing ,udget Eournals

*aintain an audit trail or$our ,udget ,alances

;enerate MassBudgetIournals to createun#osted ,udget Eournal,atches ,ased on $ourvalidated MassBudget

or*ulas The generatedEournal ,atch containsan entr$ or ever$allocation or*ula in the,atch


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'nderstanding

Oracles 3or*ula +$nta

Documents

Costs, Common Costs, and Revenues