Learning Guide Unit 2

Overview

Unit 2: Costing

Topics:

 Direct, Indirect, and Overhead Costs

 Fixed, Variable, and Mixed Costs
 Job Order Costing
 Process Costing
 Activity-Based Costing

Learning Objectives:

By the end of this Unit, you will be able to:

1. Explain the main three types of manufacturing costs (direct, indirect, and overhead) and
their cost behaviors (variable, fixed, or mixed).
2. Determine how business costs would be categorized under each cost behavior and type.
3. Describe the three cost methods and the types of businesses that would likely utilize
each method.
4. Compare and contrast different cost methods and recommend an appropriate method
for a company.

Tasks:

 Peer assess Unit 1 Assignment

 Read through the Learning Guide and the Reading Assignment
 Complete the Discussion Assignment by posting in the Discussion Forum
 Respond to and rate three of your fellow classmates’ posts in the Discussion Forum
 Complete and submit the Case Study/Written Assignment.
 Complete the Portfolio Assignment

Introduction
Commercial companies are in business to make profits for their shareholders. They do this by
selling their products or services for more than it costs to make/provide those products or
services. However, raising prices only works to the point at which consumers are still willing to
purchase the products or services. In order to continue to make profits, then, companies must
control their costs of production.

In this unit we learn about the different types of costs that companies incur and how those costs
behave. The types of costs are categorized as direct, indirect, and overhead costs. The way
these costs behave determines if they are fixed, variable, or a combination of both (“mixed”).
Once the type and behavior are identified, the costs can be analyzed on a per-unit basis. This is
needed because we can see the total costs for a period of time by reviewing the financial
statements of a business; however, in order to control costs, managers must understand those
costs at the unit level.

Finally, we look at how costs are accumulated and accounted for across different types of
businesses. These cost methods are job-costing, process costing, and activity-based costing.
Once managers understand the costs of production, they can use that information for various
analyses, which will be the subject of the next unit.

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eading Assignment

1. Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost

Accounting. https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/
Accounting/managerial-and-cost-accounting.pdf

 Chapter 3
 Chapter 4
 Chapter 12
 Chapter 18
 Chapter 21

This text provides an overview of the different cost behaviors. It also explains the cost methods
in detail.

2. Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for

Managers. https://2012books.lardbucket.org/books/accounting-for-managers/index.html

 Chapter 1 – What is Managerial Accounting? Sections:

o Cost Terminology
 Chapter 5 – How Do Organizations Identify Cost Behavior Patterns? Sections:
o Chapter Introduction
o Cost Behavior Patterns

This text describes the different types of costs and provides details on cost behaviors with
applied examples.

Optional Video

1.

Routh, B. (2017). Activity-based Costing - Simple Costing versus ABC [Video]. YouTube.(4:20)

 This video illustrates the differences in activity-based costing versus the traditional
methods of process and job costing.
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In this graduate course, you are expected to participate often and engage in deep levels of
discourse.  Please post your initial response as early as possible and continue to participate
throughout the unit. You are required to post an initial response to the question/issue presented
in the Forum and then respond to at least 3 of your classmates’ initial posts.  You should also
respond to anyone who has responded to you. 

Your Discussion should be a minimum of 250 words in length and not more than 450 words.
Please include a word count. Following the APA standard, use references and in-text citations
for the textbook and any other sources. 

 Select a public (i.e. one that publishes its financial information) manufacturing company

and become familiar with its products. Describe the company, its products, and the
specific manufacturing costs it incurs. Categorize each cost into the three manufacturing
cost categories and state if the costs are variable, fixed, or mixed. Explain how you
came to your conclusions.

Dr. Pankaj Chaudhari

Instructor

169 words

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Answer:

Dell Technologies Inc. (DELL) is an international company that manufactures computers and
laptops. The company is a part of Forbes's top 20 largest tech companies (Ponciano, 2022).
The product includes laptops and computers. Based on Yahoo Finance (2022), the company is
doing good despite the pandemic as seen in the growth of the net income.

Heisinger and Hoyle (n.d.) identify direct cost as the materials that can easily be traced while
the indirect cost is materials that are not seen. For the company DELL, their direct cost includes
the computer parts they used, examples of these are the motherboard, the case of the laptop,
etc. the indirect includes the adhesive to connect the parts the salary of the supervisor handling
clerical jobs, and monitors manufacturing of the products. Overhead costs on the other hand are
the taxes, the budget allotted for PMS (Preventive Maintenance Service), and company
insurance.

The overhead cost of PMS, administrative expenses, utilities, and taxes of the property is fixed
costs. This is because the cost of these items/services remains the same even if there is an
increase or decrease in production. Most of these are under a Memorandum of Agreement
(MoA) and would remain the same until the renewal of the contract. Variable cost is the one that
changes due to the need of the market. For example, when the cost of gold increases, the
prices of the laptop would increase since 200 laptops have 5 troy ounces of gold (More, 2013).
The last type is the mixed cost which was defined by Walther and Skousen (2009) as a cost that
changes based on the need or usage of the product. An example of this is when the company
pays an additional payment to the workers as overtime pay that is from the additional working
hours of the employees to reach a quota. This would also include the electricity and other
elements that will be involved example if they have a free meal program, they need an
additional expense due to the employee’s overtime.

Conclusion:

I had based my identification on the examples and definitions from the reference materials that I
have read. As I can see, DELL is a good company and can be considered to buy stocks from in
the future. I also like the quality of their products and the price. However, I think the prices of
their product will be heavily affected due to this crisis since most of their materials are direct and
variable.

Reference:

Dell Technologies Inc. (DELL) Financial Report. (2022, June 24). Retrieved from:
https://finance.yahoo.com/quote/DELL/financials?ltr=1

Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for

Managers. https://2012books.lardbucket.org/books/accounting-for-managers/index.html

Ponciano, J. (2022, May 12). Forbes. Retrieved form:

https://www.forbes.com/sites/jonathanponciano/2022/05/12/the-worlds-largest-technology-
companies-in-2022-apple-still-dominates-as-brutal-market-selloff-wipes-trillions-in-market-
value/?sh=401b432f3448

More, P. (2013, March 20). How Much Gold is in Smartphones and Computers? Dell
Technologies. Retrieved from: https://www.dell.com/en-us/blog/how-much-gold-is-in-
smartphones-and-computers/

Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost

Accounting. https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/
Accounting/managerial-and-cost-accounting.pdf

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Submit a paper which is 2-3 pages in length, exclusive of the reference page. The paper should be double
spaced in Times New Roman (or its equivalent) font, which is no greater than 12 points in size. The paper
should cite at least three sources in APA format.

In this paper, please discuss the three costing methods of job order costing, process costing, and activity-
based costing. 
  Define each method and explain when it is best suited to be used. 
 Compare and contrast the methods and consider their benefits and shortfalls. 
 Use the information provided to propose which cost method should be used to allocate costs.

Wet Suit World is a company that manufactures wet suits for use with water sports such as snorkeling and
scuba diving. The suits are made in sizes small through 3x extra large with levels of insulation layers of 2
millimeters, 5 millimeters, and 7 millimeters. They come in black with the Wet Suit World logo imprinted
across the chest. The materials are the same for all of the suits, though they vary in thickness. All
suits undergo the same production and quality inspection processes.

There is no one “correct” answer to the proposed cost allocation method as long as the answer is well-
supported based on the week’s learning.

Superior papers will include the following when responding to the assignment question:

 Define the three costing methods.

 Explain when each is most appropriately used.
 Compare and contrast the methods, considering both benefits and shortfalls.
 Provide a well-supported proposal for the cost method Wet Suit World should use.

Be sure to use APA formatting in your paper.  Purdue University’s Online Writing LAB (OWL) is a free
website that provides excellent information and resources for understanding and using the APA format
and style. The OWL website can be accessed
here: http://owl.english.purdue.edu/owl/resource/560/01/

Your paper will be assessed using this rubric.

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Answer:

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This week we focused on manufacturing costs, but

selling, general, and administrative (SG&A) costs are
also important. Using the company you selected for
the discussion forum question, what specific types of
SG&A costs would the company incur? How would
these costs be considered in product costing?
As portfolio activities are to be self-reflective, please
make sure to connect the portfolio assignment to:

 Your personal experiences. Reflect on how this

assignment topic is applicable to and will benefit
you.
 Course readings and any external readings.
 Discussion forum posts or course objectives.

The Portfolio Activity entry should be a minimum of

500 words and not more than 750 words. Use APA
citations and references if you use ideas from the
readings or other sources.

This assignment will be assessed using the Portfolio

rubric.
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