Cost assignment — AccountingTools


cost assignment methods

Sep 27,  · Here is the video about assignment problem - Hungarian method on Operations research, In this video we discussed what is assignment problem and how . At, we provide Assignment Help/Homework Help and One on One Online Sessions for Methods of Costing. Please submit your assignments at “Submit Assignment” Section of our website or send a mail to [email protected], mentioning the deadline. Question: Cost Assignment Methods Brody Company Makes Industrial Cleaning Solvents. Various Chemicals, Detergent, And Water Are Mixed Together And Then Bottled In gallon Drums. Brody Provided The Following Information For Last Year: Raw Materials Purchases $, Direct Labor , Depreciation On Factory Equipment 45, Depreciation On Factory Building.

Inventory Costing Methods -

Why begin a discussion of inventory with this observation? The reason is that inventory measurement bears directly on the determination of income! In the graphic, the inventory appears as physical units. The following graphic illustrates this allocation process. Further, as cost of goods sold is increased or decreased, there is an opposite effect on gross profit. Thus, cost assignment methods, a critical factor in cost assignment methods income is the allocation of the cost of goods available for sale between ending inventory and cost of goods sold:.

In earlier chapters, the assigned cost of inventory was always given. Not much was said about how that cost was determined. This cost assignment methods that inventory cost would include the invoice price, freight-in, and similar items relating to the general rule. Likewise, freight-out and sales commissions would be expensed as a selling cost rather than being included with inventory. Once the unit cost of inventory is determined via the preceding logic, specific costing methods must be adopted, cost assignment methods.

In other words, each unit of inventory will not have the exact same cost, and an assumption must be implemented to maintain a systematic approach to assigning costs cost assignment methods units on hand and to units sold.

To solidify this point, consider a simple example. Mueller Hardware has a nail storage barrel. The barrel was filled three times. The barrel was never allowed to empty completely and customers have picked all around in the barrel as they bought nails. As one might expect, some of the nails are probably from the first filling, some from the second, and some from the final. At the end of the accounting period, Mueller weighs the barrel and decides that pounds of nails are on hand.

What is the cost of the ending inventory? Remember, this question bears directly on the determination of income! To deal with this very common accounting question, a company must adopt an inventory costing method and that method must be applied consistently from year to year, cost assignment methods.

Cost assignment methods methods from which to choose are varied, cost assignment methods, generally consisting of one of the following:. Each of these methods entails certain cost-flow assumptions. Importantly, the assumptions bear no relation to the physical flow of goods; they are merely used to assign costs to inventory units. Another method that will be discussed shortly is the specific identification method.

As its name suggests, the specific identification method does not depend on a cost flow assumption. With first-in, first-out, cost assignment methods, the oldest cost i. Conversely, the most recent purchases are assigned to units in ending inventory.

Last-in, first-out is just the reverse of FIFO; recent costs are assigned to goods sold while the oldest costs remain in inventory:. The weighted-average method relies on average unit cost to calculate cost of units sold and ending inventory.

Average cost is determined by dividing total cost of goods available for sale by total units available for sale. Examine each of the following comparative illustrations noting how the cost of beginning inventory and purchases flow to ending inventory and cost of goods sold.

The actual physical flow of the inventory may or may not bear a resemblance to the adopted cost flow assumption. Purchases and sales are shown in the schedule. Assume that Gonzales conducted a physical count of inventory and confirmed that 5, units were actually on hand at the end of the year.

The dollar amount of sales will be reported in the income statement, along with cost of goods sold and gross profit. How much is cost of goods sold and gross profit? The answer will depend on the cost flow assumption. If Gonzales uses FIFOending inventory, cost of goods sold, and the resulting financial statements are as follows:.

If Gonzales uses LIFOcost assignment methods, ending inventory, cost of goods sold, and the resulting financial statements are as follows:. If Gonzales uses the weighted-average methodending inventory and cost of goods sold calculations are as follows:. These calculations support the following financial statement components.

The following table reveals that the amount of gross profit and ending inventory can appear quite different, depending on the inventory method selected:, cost assignment methods. The preceding results are consistent with a general rule that LIFO produces the lowest income assuming rising prices, as was evident in the Gonzales exampleFIFO the highest, and weighted average an amount in between.

Because LIFO tends to depress profits, one may wonder why a company would select this option; the answer is sometimes driven by income tax considerations. Lower income produces a lower tax bill, thus companies will tend to prefer the LIFO choice. Usually, cost assignment methods, financial accounting methods do not have to conform to methods chosen for cost assignment methods purposes. However, in the U. In many countries LIFO is not permitted for tax or accounting purposes, and there is discussion about the U.

Accounting theorists may argue that financial statement presentations are enhanced cost assignment methods LIFO because it matches recently incurred costs with the recently generated revenues.

Others maintain that FIFO is better because recent costs are reported in inventory on the balance sheet. Whichever method is used, cost assignment methods, it is important to note that the inventory method must be clearly communicated in the financial statements and related notes. Consistency in method of application should be maintained.

This does not mean that changes cannot occur; however, changes should only be made if financial reporting is deemed to be improved.

Once a specific inventory item is sold, the cost of the unit is assigned to cost of goods sold. Specific identification requires tedious record keeping and is typically only used for inventories of uniquely identifiable goods that have a cost assignment methods high per-unit cost e.

To illustrate, assume Classic Cars began the year with 5 units in stock. Classic has a detailed list, by serial number, of each car and its cost. Each car is unique and had a different unit cost. The year ended with only 3 cars in inventory. Under specific identification, it would be necessary to examine the 3 cars, cost assignment methods, determine their serial numbers, and find the exact cost for each of those units. The cost of goods sold could be verified by summing up the individual cost for each unit sold.

Inventory Costing Methods. Did you learn? Understand cost of goods available for sale, and how this cost must be allocated to inventory and cost of goods sold.

Distinguish between the physical flow of goods and their cost flow for accounting purposes. Know the general impacts of alternative cost flow assumptions, with special attention to the tax and financial statement results.

Must inventory methods be used consistently? Visit the Bookstore.


Costing Methods and Important Costing Terms


cost assignment methods


The Assignment Problem and the Hungarian Method 1. Example 1: You work as a sales manager for a toy manufacturer, and you currently have three salespeople on The sum of the n entries of an assignment is its cost. An assignment with the smallest possible cost is called an optimal assignment. May 16,  · Cost allocation (also called cost assignment) is the process of finding cost of different cost objects such as a project, a department, a branch, a customer, etc. It involves identifying the cost object, identifying and accumulating the costs that are incurred and assigning them to the cost object on some reasonable Irfanullah Jan, ACCA. Sep 27,  · Here is the video about assignment problem - Hungarian method on Operations research, In this video we discussed what is assignment problem and how .