1. From a tax perspective, it is legally ok to switch costing systems. But is this a best practice? What would investors think of a company that switches costing methods every 2-3 years for example? Also, how does the FASB weigh in on this?
2. In our discussion of costing ethics, we will consider ethical issues that might arise in each of these methods. Let's start with job costing. Please identify and discuss at least one ethical issue that might arise in this costing method.
3. There are four steps that we must follow when using activity-based costing (ABC):
1. Identify the activities.
2. Identify the cost driver(s) for each activity identified in step #1.
3. Calculate the rate per cost driver.
4. Assign costs to products by multiplying the rate per cost driver from step #3 to volume of cost driver units consumed.
Using these steps, let's work through an example of a problem you may see in your homework this week. First, check out the video that I have prepared on this topic (it is attached here and also available in Doc Sharing), I think you will find it to be helpful!
Then let's use this thread here to show your calculations and share any questions that you may have about applying these steps.
Stumptown Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information provided below.
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Wall Mirrors
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Specialty Windows
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Units produced
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40
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20
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Material moves per product line
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5
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15
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Direct labor hours per product line
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200
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300
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Budgeted material handling costs: $50,000
Under an activity-based costing (ABC) system, what would be the materials handling costs allocated to one unit of specialty windows?