1. Principles of Cost Analysis and Management
Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
Principles of Cost Analysis and Management
Show Slide #1: Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
Title: Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
References: FM 1-06 Financial Management Operations, Lesson Created Handout, Notes and Template.
Section I. Administrative Data
Academic Hours/Methods
01 hrs. / 30 min. DSL (large or small group discussion)
00 hrs. / 20 min. PE (practical exercise (Hands On)
00 hrs. / 00 min. Test
00 hrs. / 00 min. Test Review
00 hrs. / 00 min. Total Hours
Section II. Introduction:
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 1:25
Time of Instruction: 00 hrs. / 05 min.
Media: PowerPoint Presentation
Motivator (Concrete Experience 5 minutes): Discuss with Learners what is their interpretation on calculating cost of a service, following the Tips & Warnings from eHow website stating:
Different cost calculation methods are possible. Companies can typically use whatever method they deem most accurate for reporting costs. Failure to record all costs accurately can lead to misrepresented financial statements
Ask Learners what their thoughts are and facilitate a short discussion. “
Facilitator's Material: Each primary Facilitator should possess a lesson plan, slide deck, course handouts, practical exercise with answer key, excel template, case studies and summary sheet containing FM 1-06.
Learner’s Material: Learners should possess course handouts, practical exercises, summary sheet containing FM 1-06, case studies, excel template with access to Bb and standard classroom supplies.
Note: "All required references and technical manuals will be provided by the School House“

2. Terminal Learning Objective
Action: Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Identify Three Methods of Distribution
Calculate Cost of a Service/Job
Conduct Case Study – Allocate Using Various Cost Pools
Show Slide #2: Terminal Learning Objective
Facilitator’s Note: Read TLO
Action: Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Identify Three Methods of Distribution
Calculate Cost of a Service/Job
Conduct Case Study – Allocate Using Various Cost Pools
Safety Requirements: In a training environment, leaders must perform a risk assessment in accordance with DA PAM , Risk Management. Leaders will complete a DD Form 2977 DELIBERATE RISK ASSESSMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations (METT-TC). Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the work/rest cycles and water replacement guidelines IAW TRADOC Regulation
Risk Assessment Level: Low.
Environmental Considerations: Environmental protection is not just the law but the right thing to do. It is a continual process and starts with deliberate planning. Always be alert to ways to protect our environment during training and missions. In doing so, you will contribute to the sustainment of our training resources while protecting people and the environment from harmful effects. Refer to FM Environmental Considerations and GTA ENVIRONMENTAL-RELATED RISK ASSESSMENT.
Evaluation: Learner’s will take both the Principles of Cost Analysis and Management 2 and Principles of Cost Analysis and Management 3 Exam at the end of Week Two and Week Three. Learners must score 80% or higher and International officers must score 70% or higher.

3. = Review: Managerial Costing / Terminology cost pool Example
raw accounting data =
method of
distribution
method of
distribution
Show Slide #3: Review: Managerial Costing / Terminology
Instructional Lead-in: Managerial Costing / Terminology
Facilitator’s Note: Facilitate a discussion with learners of both the Managerial Costing and Terminology.
Managerial Costing:
1. Review the purpose of managerial costing (to translate raw accounting data into managerially useful information) and managerial costing terms.
Raw accounting data (building blocks of managerial information) = Cost pool
Managerial costing translation = method of distribution (Why do we need this? Because managers generally want cost information by outputs and the accounting system records inputs)
Managerially useful information = cost object
Raw accounting Data  Cost Pool
Managerial Costing translation  method of distribution
Managerially useful information  cost object
Mouse Click View:
Terminology:
2. Review method of distribution and the mechanics of translating the information or assigning the cost pool to cost objects.
Method of distribution: The mechanics of deriving management information from the cost pool
Example: Determine unit cost by adding all input costs and dividing by number of units
managerially useful information
cost object

4. Alternative Methods of Distribution
Managers can obtain the needed view of cost in several ways
Guessing: gut feel of cost distribution
Direct costing: detailed record keeping of all incurred cost transactions by every cost object
Allocation: distribution of cost pool in the same proportion as a cost driver
Show Slide #4: Alternative Methods of Distribution
Learning Step Activity 1: Identify Three Methods of Distribution
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 20 min.
Media: Power Point, Printed Reference Material
21st Century Soldier Competencies: The 21st Century Soldier Competencies are essential to ensure Soldiers and leaders are fully prepared to prevail in complex, uncertain environments. Throughout the lesson discussions, seek opportunities to link the competencies with the lesson content through the Learner’s experiences.
Facilitator's Note: Before facilitating this lesson, ask the Learners which of the 21st Century Soldier Competency do they think pertain to this lesson? Facilitate a discussion on the answers given and at the end of the lesson revisit it and see if the Learners still believe their choice are the same.
Note: For this lesson these competencies should be talked about.
#6. Communication and engagement (oral, written, and negotiation)
#7. Critical thinking and problem solving
#8. Cultural and joint, interagency, intergovernmental, and multinational competence
#9. Tactical and technical competence (full spectrum capable)
Facilitator’s Note: Transition into lesson facilitating discussion on alternative methods of distribution managers can obtain view of cost in several ways.
Guessing/Gut feel: has value if based on managerial experience
Direct Costing: detailed record keeping of all incurred cost transactions by every cost object. Requires recording multiple transactions. Very accurate, but also time consuming and costly.
Allocation: Distributes cost pool in same proportion as a cost driver
Note: Each of the three methods of cost distribution has appropriate application, which will be discussed later.

5. Applications for Guessing
Simple situations where:
Cost of measurement error is small
Need for credibility is low
Ability to hold someone accountable is missing
Cost of cost measurement is high
guessing
and
gut feel
Show Slide #5: Applications for Guessing
Step 1: Identify Three methods of distribution:
Guessing and gut feel do have application.
It is useful in simple situations where:
Cost of measurement error is small:
you are measuring costs that are not out-of-pocket costs: depreciation, opportunity costs, etc.
Need for credibility is low:
you will not be required to document these costs in an external report.
Low accountability:
you will not be required to explain this number to a superior.
Or, you do not have a subordinate who is directly responsible for this cost.
Cost of measurement is high:
benefit of a more accurate measurement would not justify the cost.

6. Detailed Record Keeping Applications
Labor cost can be accounted for by product through time and attendance reporting
Project costs can include supplies and services charged by job order
Product material costs can be determined through bill of materials
detailed
record
keeping
Show Slide #6: Detailed Record Keeping Applications
Step 1: Identify Three methods of distribution: (Cont.)
Facilitator’s Note: Facilitate discussion on although detailed record keeping, or direct costing, is expensive, it does have some practical applications.
Labor cost can be accounted for by product through time and attendance reporting.
We already keep detailed records of labor for other purposes: payroll, taxes and external reporting. Therefore the additional cost of measurement is small.
Project costs can include supplies and services charged by job order.
Again, we already keep detailed records of jobs for job order costing, and these items can be easily translated to project costs.
Product material costs can be determined through bill of materials.
The bill of materials is a detailed record of materials used in manufacturing a product. If we are already keeping these records for external reporting purposes, we can and should use them for managerial costing purposes.

7. Examples of Detailed Record Keeping
Job order charges
Bill of materials system
Time and attendance reporting
Show Slide #7: Examples of Detailed Record Keeping
Step 1: Identify Three methods of distribution:
Job order charges
– Direct costing is common, especially for product or job order costing.
– These systems track both labor and materials.
Bill of materials system
– Keeps detailed records of materials used.
Time and attendance reporting
– Time and attendance reporting tracks the time a worker puts in on a particular product or job.

8. Why Not Use Detailed Record Keeping for All Cost?
May not be practical
Will be more expensive
May not be necessary
Probably less flexible
May not be possible
Joint costs and overhead costs often consumed by more than one cost object
method of
distribution
Show Slide #8: Why Not Use Detailed Record Keeping for All Cost?
Step 1: Identify Three methods of distribution:
Facilitator’s Note: Ask learners, Why Not Use Detailed Record Keeping for All Cost?
1st Mouse Click View:
It may not be practical. Will be more expensive
May not be necessary
Probably less flexible
Explain to Learner’s:
Detailed record keeping is not practical for all costs, generally because of the expense.
Also, information obtained by detailed record keeping may not differ substantially from that obtained through allocation.
Therefore, the benefit of the information obtained does not justify the cost.
2nd Mouse Click View:
Facilitator’s Note: Ask learners, Why May not be possible
Joint costs and overhead costs often consumed by more than one cost object
There are some instances where detailed record keeping for each cost object is simply not possible.
Joint costs by definition benefit more than one product but are charged to the accounting system as a single cost.
Overhead functions often serve more than one cost object at the same time, making it impossible to separate the costs through record keeping.
Costs must be assigned through allocation.

9. An Extreme Example
Consider the accountant at Detailed Transaction Command
Changes pencils every time he writes a transaction for a different cost object
Writes a materials ticket for each pencil issued to each cost object
Maintains meticulous time records whenever he changes pencils
Wonders what to do about cost of pencil sharpener?
Show Slide #9: An Extreme Example
Step 1: Identify Three methods of distribution:
Facilitator’s Note: This is an example to demonstrate overly detailed record keeping:
Consider the accountant at detailed transaction command
Changes pencils every time he writes a transaction for a different cost object
Writes a materials ticket for each pencil issued to each cost object
Maintains meticulous time records whenever he changes pencils
Wonders what to do about cost of pencil sharpener?
Even though this accountant keeps meticulous records, and makes every attempt to keep costs separate, there is still one joint cost that he must allocate: the cost of the pencil sharpener.

10. Method of Distribution Comparison
cost of method accuracy flexibility
guessing cheap poor good
direct very expensive good poor
allocation reasonable reasonable reasonable
Show Slide #10: Method of Distribution Comparison
Step 1: Identify Three methods of distribution:
Facilitator’s Note: Compare with learners the three methods:
Guessing: is inexpensive, and offers a high degree of flexibility, but is not very accurate
Direct Costing: offers good accuracy, but is very expensive and not very flexible.
Allocation: is the only method that is offers reasonable accuracy and flexibility at a reasonable cost.

11. Review: Allocation Allocation: Example:
A method of distribution that distributes cost pool to cost objects in the same proportion as cost driver
Example:
Distributing the cost of utilities to occupants in the same proportion as space occupied
allocation
based on
cost driver
Show Slide #11: Review: Allocation
Step 1: Identify Three methods of distribution:
Review Allocation:
A method of distribution that distributes cost pool to cost objects in the same proportion as cost driver.
Note: We covered the mechanics of allocation in the last lesson. Allocation is the most reasonable of the three methods of distributing or assigning costs to cost objects.
Example: Distributing the cost of utilities to occupants in the same proportion as space occupied

12. Most Systems Combine Methods
cost pool
detailed
record
keeping
allocation
based on
cost driver
Show Slide #12: Most Systems Combine Methods
Step 1: Identify Three methods of distribution:
Facilitator’s Note: Go over the illustration which shows how costs systems generally use a combination of direct costing (detailed record keeping) and allocation to obtain information about a cost object.
Cost Pool
Detailed Record Keeping
Allocation Based on Cost Driver
Cost Object
cost object

13. Combining Methods Detailed Record Keeping Allocation Receptionist
Materials
Management
Show Slide #13: Combining Methods
Step 1: Identify Three methods of distribution:
Note: An automobile is a common example of using a combination of methods.
While the materials and direct labor can be tracked directly using detailed record keeping, other costs must be allocated:
Accounting and payroll, management, production control, and even the company receptionist.
Production Control
Labor
Accounting/
Payroll

14. Choosing a Method of Distribution
Use guessing for simple decision making
Keep detailed records when accounting cost is low and high accuracy useful
Allocate overhead, support, and indirect costs when appropriate
Consider management’s needs for precision and timeliness
Show Slide #14: Choosing a Method of Distribution
Step 1: Identify Three methods of distribution:
Facilitator’s Note: Ask learners which method they think is best?
Use guessing for simple decision making
Keep detailed records when accounting cost is low and high accuracy useful
Allocate overhead, support, and indirect costs when appropriate
Consider management’s needs for precision and timeliness
Note: It depends on the situation and the deciding factors are management need and cost.

15. Discussion: Telephone Charges
Should these be allocated or charged via detailed, call-by-call records?
Issues to consider
What does management need?
Is telephoning a core mission or support function?
Are detailed records available?
Show Slide #15: Discussion: Telephone Charges
Step 1: Identify Three methods of distribution:
Should these be allocated or charged via detailed, call-by-call records?
The important issues to consider are:
What does management need?
If management isn’t sure what it needs, then ask if the function is a core mission (lean towards detailed record keeping) or a support function (lean towards allocation)
Finally, some detailed records are readily available and therefore, the cost is not too high.
The phone company already tracks phone usage on a detailed basis, so these records would not be costly to obtain.
Computer systems that record a log on and log off may be used to track computer usage.

16. LSA #1 Check on Learning
Q1. Which method of distribution is the least expensive? A1. Guessing or gut-feel Q2. Which method is the most accurate? A1. Detailed record keeping
Show Slide #16: LSA #1 Check on Learning
Facilitator's Note: Ask check on learning question, facilitate discussion on answers given.
Q1. Which method of distribution is the least expensive?
A1. Guessing or gut-feel
Q2. Which method is the most accurate?
A1. Detailed record keeping

17. LSA #1 Summary
Reviewed the purpose of managerial costing, identified the three method of distribution, discuss detailed record keeping, combining methods and reviewed allocations.
Show Slide #17: LSA#1 Summary
Facilitator's Note: Announce to the learners; during this lesson, we reviewed the purpose of managerial costing, identified the three method of distribution, discuss detailed record keeping, combining methods and reviewed allocations.

18. Cost of a Job Job cost = direct cost + assigned indirect cost
Mechanical service department incurs the following costs for the month of September:
Mechanic labor $20K
Parts K
Clerical labor K
Shop supplies K
Which costs are direct and which are indirect?
Job cost = direct cost + assigned indirect cost
Mechanical service department incurs the following costs for the month of September:
Mechanic labor $20K
Parts K
Clerical labor K
Shop supplies K
Which costs are direct and which are indirect?
Job cost = direct cost + assigned indirect cost
Mechanical service department incurs the following costs for the month of September:
Mechanic labor $20K
Parts K
Clerical labor K
Shop supplies K
Which costs are direct and which are indirect?
Show Slide #18: Cost of a Job
2. Learning Step Activity 2: Calculate Cost of a Service/Job
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 20 min.
Media: Power Point, Printed Reference Material
Activity step 2: Calculate cost of a service/job
Job cost = direct cost + assigned indirect cost
Mechanical service department incurs the following costs for the month of September:
Mechanic labor $20K
Parts 16K
Clerical labor K
Shop supplies K
Which costs are direct and which are indirect?
1st Mouse Click View:
Direct costs are mechanic labor and parts. These are identifiable to each job.
2nd Mouse Click View:
Indirect costs are clerical labor and shop supplies. These must be assigned to each job.

19. Cost of a Job (Cont.)
During the month four jobs are started and completed
What is the driver rate if parts dollars are used as a driver?
Total OH cost pool / Total driver =
Clerical $8K + Supplies $4K / Total Parts $16K = 75%
During the month four jobs are started and completed
What is the driver rate if parts dollars are used as a driver?
Total OH cost pool / Total driver =
Clerical $8K + Supplies $4K / Total Parts $16K = 75%
Show Slide #19: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
During the month four jobs are started and completed
What is the driver rate if parts dollars are used as a driver?
Mouse Click View:
Total OH cost pool / Total driver = Clerical $8K + Supplies $4K / Total Parts $16K = 75%
Since both the numerator and the denominator contain the unit of measure “$K” (thousands of dollars), the unit of measure cancels out and the rate is stated as a decimal (.75) or a percentage (75%). This means that we assign $.75 of overhead per every $1 of parts used by the job.
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800

20. Cost of a Job (Cont.)
During the month four jobs are started and completed
What is the overhead allocated to each job if Parts dollars are used as a driver?
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
OH = 75% * Parts $K
3 * .75 = 2.25
2 * .75 = 1.5
1 * .75 = .75
10 * .75 = 7.5 12
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
OH = 75% * Parts $K
Show Slide #20: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
What is the overhead allocated to each job if Parts dollars are used as a driver?
We will multiply the rate (75%) times the Parts dollars used by each job to calculate the overhead to be assigned to each job.
Mouse Click View:
Job A: 3 (parts dollars) * .75 = 2.25
Job B: 2 * .75 = 1.5
Job C: 1 * .75 = .75
Job D: 10 * .75 = 7.5
Note that the overhead allocations are also stated in $K (thousands of dollars)
Also note that the total overhead allocated ($12K) is equal to the total overhead pool of $4K supplies and $8K clerical.

21. Cost of a Job (Cont.)
During the month four jobs are started and completed
What is each job’s proportion?
Driver unit usage / Total driver units
During the month four jobs are started and completed
What is each job’s proportion?
Driver unit usage / Total driver units
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
3/16
2/16
1/16
10/16
16/16
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
Show Slide #21: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
Facilitator’s Note: Inform learners that this is the same problem but now we will apply the proportion method:
During the month four jobs are started and completed
What is each job’s proportion?
Mouse Click View:
Driver unit usage / Total driver units
Job A uses $3K of a total of $16K parts, making its proportion 3/16
B’s proportion is 2/16
C’s is 1/16
D’s is 10/16
Notice that all of the proportions add to 16/16 or 100%

22. Cost of a Job (Cont.)
During the month four jobs are started and completed
Using the proportion method, what is the overhead allocation for each job?
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
3/16
2/16
1/16
10/16
16/16
OH = Prop * Total OH
3/16*12
= 2.25
2/16*12
= 1.5
1/16*12
= .75
10/16*12= 7.5 12
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
3/16
2/16
1/16
10/16
16/16
OH = Prop * Total OH
Show Slide #22: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
During the month four jobs are started and completed
Using the proportion method, what is the overhead allocation for each job?
Mouse Click View:
The formula for the overhead allocation is Proportion * total cost pool.
The total cost pool is clerical $8K + supplies $4K = $12K
So, each job’s proportion is multiplied times the total cost pool:
Job A 3/16*12= 2.25
Job B 2/16*12= 1.5
Job C 1/16*12= .75
Job D 10/16*12= 7.5
Again, notice that the entire cost pool of $12K has been allocated.
Also, notice that the allocations using the proportion method are identical to the rate method.

23. Cost of a Job (Cont.)
During the month four jobs are started and completed
What is the total cost of each job?
Cost of job = Parts + Labor + Overhead
During the month four jobs are started and completed
What is the total cost of each job?
Cost of job = Parts + Labor + Overhead
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Overhead
2.25
1.5
.75
7.5 12
Total $K
7.25
6.5
6.75
27.5 48
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Overhead
2.25
1.5
.75
7.5 12
Total $K
Show Slide #23: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
During the month four jobs are started and completed
What is the total cost of each job?
Mouse Click View:
Total cost of a job is equal to: Parts + Labor + Overhead
The machine hours have been eliminated from this table because they are not relevant and may cause confusion.
Job A = Parts $3k + Labor $2K + OH $2.25K = $7.25K
Job B = Parts $2k + Labor $3K + OH $1.5K = $6.5K
Job C = Parts $1k + Labor $5K + OH $.75K = $6.75K
Job D = Parts $10k + Labor $10K + OH $7.5K = $27.5K

24. Cost of a Job (Cont.)
What is the driver rate if Labor hours are used as a driver? $12,000/800 hours = $15/hour
What is each job’s proportion and allocation?
(Labor hours for job/ Total labor hours) * Total OH
What is the driver rate if Labor hours are used as a driver? $12,000/800 hours = $15/hour
What is each job’s proportion and allocation?
(Labor hours for job/ Total labor hours) * Total OH
What is the driver rate if Labor hours are used as a driver? $12,000/800 hrs. = $15/hour
What is each job’s proportion and allocation?
(Labor hours for job/ Total labor hours) * Total OH
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
150/800
80/800
50/800
520/800
800/800
Overhead
Allocation
150/800*12= 2.25
80/800*12= 1.2
50/800*12= 0.75
520/800*12= 7.8 12
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
Overhead
Allocation
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Labor Hr.
150 80 50
520
800
Prop.
Overhead
Allocation
Show Slide #24: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
What if we decide that parts dollars does not represent consumption of resources and instead choose labor hours?
What is the driver rate if Labor hours are used as a driver?
1st Mouse Click View:
The rate is $12,000/800 hours = $15/hour
2nd Mouse Click View:
The formula for the proportion is: (Labor hours for job/ Total labor hours)
The formula for the allocation is: (Labor hours for a job / Total Labor hours) * Total OH
The proportions are as follows: The overhead allocations are:
Job A 150/800 Job A 150/800 * $12k = 2.25
Job B 80/800 Job B 80/800*$12k= 1.2
Job C 50/800 Job C 50/800*$12k= .75
Job D 520/800 Job D 520/800*$12k= 7.8
Notice that the proportions all add up to 800/800 or 100%
These did not change greatly from the parts dollars allocation.
The overhead assigned to Jobs A and C remained the same.
The overhead assigned to Job D increased by $300 and the overhead assigned to Job B decreased by $300.
That is an example of balloon squeezing.
The total overhead did not change.
It is still $12K. But the distribution among the jobs changed slightly.
The overhead assigned to Jobs A and C remains the same because their proportion of parts dollars is equal to their proportion of labor hours. (A’s parts proportion is 3/16 = 18.75%. Its labor hours proportion is 150/800 = 18.75%)
The overhead assigned to Job D increases because its proportion of labor hours is greater than its proportion of parts dollars. (D’s parts proportions is 10/16 = 62.5%. Its labor hours proportion is 520/800 = 65%)
The overhead assigned to Job B decreases because its proportion of labor hours is less than its proportion of parts dollars. (B’s parts proportions is 2/16 = 12.5%. Its labor hours proportion is 10/800 = 10%)

25. Cost of a Job (Cont.)
If Labor hours are used as a driver, what is the total cost of each job?
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Overhead
2.25
1.2
0.75
7.8 12
7.25
6.2
6.75
27.8 48
Job: A B C D
Total
Parts $K 3 2 1 10 16
Labor $K 5 20
Overhead
2.25
1.2
0.75
7.8 12
Show Slide #25: Cost of a Job (Cont.)
Activity step 2: Calculate cost of a service/job
If Labor hours are used as a driver, what is the total cost of each job?
Mouse Click View:
The total costs of the job is Parts + Labor + Overhead.
The total cost of each job reflects the new overhead allocation:
Job A = Parts $3k + Labor $2K + OH $2.25K = $7.25K
Job B = Parts $2k + Labor $3K + OH $1.2K = $6.2K
Job C = Parts $1k + Labor $5K + OH $.75K = $6.75K
Job D = Parts $10k + Labor $10K + OH $7.8K = $27.8K

26. LSA #2 Check on Learning
Q1. What happens to an object’s overhead allocation as its proportion of cost driver increases? A1. It will increase Q2. If the unit of measure for the cost driver is dollars, what will be the unit of measure for the driver rate? A2. The unit of measure in the cost pool is dollars. Note: If the unit of measure in the cost driver is also dollars, then the driver rate will be stated as a percentage.
Show Slide #26: LSA #2 Check on Learning
Facilitator’s Note: Ask check on learning question, facilitate discussion on answers given.
Q1. What happens to an object’s overhead allocation as its proportion of cost driver increases?
A1. It will increase
Q2. If the unit of measure for the cost driver is dollars, what will be the unit of measure for the driver rate?
A2. The unit of measure in the cost pool is dollars.
Note: If the unit of measure in the cost driver is also dollars, then the driver rate will be stated as a percentage.

27. LSA #2 Summary
During this lesson, we discussed the calculation of cost for services and jobs, its rate and overhead to specific jobs, jobs proportion and allocations.
Show Slide #27: LSA #2 Summary
Facilitator’s Note: Announce to the learners; during this lesson, we discussed the calculation of cost for services and jobs, its rate and overhead to specific jobs, jobs proportion and allocations.

28. Facilities Case
An Army Installation has four Companies that occupy five buildings. Incurred costs of $100,000 include utilities, building maintenance, and miscellaneous facilities related expenditures. New policies require the Installation to charge its costs back to Companies.
Using the Allocation Worksheet and the following information, prepare a cost allocation:
Show Slide #28: Facilities Case
3. Learning Step Activity 3: Conduct Case Study – Allocate Using Various Cost Pools
Method of Instruction: DSL (large or small group discussion)
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 01 hrs. / 30 min
Media: Power Point, Printed Reference Material
Step 3: Case study – Allocate using various cost pools
Facilitator’s Note: Inform Learner’s that will conduct 3 separate facilities case studies utilizing the excel worksheet and info from the upcoming slides.
Data for facilities case:
Note: This should be used with the allocation worksheet to develop expertise in allocation.
An Army Installation has four Companies that occupy five buildings. Incurred costs of $100,000 include utilities, building maintenance, and miscellaneous facilities related expenditures. New policies require the Installation to charge its costs back to Companies.
Using the Allocation Worksheet and the following information, prepare a cost allocation:
Number of buildings
Company A, B, C, and D
Company
Company
Company
Company A B C D
Number of
Buildings 2 1 1 1

29. Consider: What are the cost objects? What is the cost driver?
What is the rate per building?
What is each company’s proportion?
What assumptions are made in using number of buildings as a cost driver?
Is this a good method of distribution?
Show Slide #29: Consider
Activity step 3: Case study – Allocate using various cost pools
Identify the key data points:
What are the cost objects?
Cost Objects = Companies A,B,C and D
What is the cost driver?
Cost Driver = Buildings
What is the rate per building?
Rate Per Building = $100,000 / 5 buildings = $20,000/building
What is each company’s proportion?
Proportions:
A= 2/5 = 40%
B= 1/5 = 20%
C=1/5 = 20%
D=1/5 = 20%
What assumptions are made in using number of buildings as a cost driver?
Assumes that all buildings are the same or at least similar
Is this a good method of distribution?
It is if all buildings are the same or similar.

30. Allocation Spreadsheet
Enter the cost pool and cost objects
After entering driver data the cost allocation calculates automatically
Show Slide #30: Allocation Spreadsheet
Activity step 3: Case study – Allocate using various cost pools
Facilitator’s Note: Inform Learner’s that the screenshots show the data entry and allocation pages from the allocation spreadsheet
Enter the cost pool and cost objects
After entering driver data the cost allocation calculates automatically

31. What Difference Does it Make?
Some of the buildings are small?
One of the building is the pentagon? ≠
Show Slide #31: What Difference Does it Make?
Activity step 3: Case study – Allocate using various cost pools
Facilitator’s Note: Ask the question to the class “What difference does it make?” then have learners volunteer to give their responds for further discussions or disputes on the answers given, before addressing the answer provided on the screen.
Q. If some of the Buildings are Small?
Q. One of the Building is the Pentagon?
This brings up the issue of homogeneity.
If all units of cost driver, in this case buildings, are not the same, then they do not consume resources equally and the allocation of cost will not approximate actual consumption of resources.

32. Facilities Case B
Not surprisingly, the Company Commanders were not pleased to hear about the Facilities assessment. However, Company B brought up a valid point: Why should his organization, which occupies a small building, receive the same allocation as Company D, which occupies a substantially larger building? Taking this into consideration, the Facilities manager decided to re-allocate the $100,000 to the general cost pool on the basis of Square Footage occupied by each organization.
Show Slide #32: Facilities Case B
Step 3: Case study – Allocate using various cost pools
Data for facilities case B:
Note: This should be used with the allocation worksheet to develop expertise in allocation.
Not surprisingly, the Company Commanders were not pleased to hear about the Facilities assessment.
However, Company B brought up a valid point:
Why should his organization, which occupies a small building, receive the same allocation as Company D, which occupies a substantially larger building?
Taking this into consideration, the Facilities manager decided to re-allocate the $100,000 to the general cost pool on the basis of Square Footage occupied by each organization.
Square Footage
Company A, B, C, and D
Company A B C D
Square
Footage
20000
1000
9000

33. Allocation Spreadsheet
Enter data for multiple drivers and select drivers from pull-down lists
Show Slide #33: Allocation Spreadsheet
Step 3: Case study – Allocate using various cost pools
Facilitator’s Note: Inform Learner’s that the screenshots show’s how the spreadsheet can accept data for additional drivers.
Learners can select different drivers and see the effect on the cost allocation.
At the lower right learners can view the resulting allocation when the cost driver is square footage rather than number of buildings.
While the spreadsheet is a useful tool, the calculations in this case study are simple enough that learners will probably be able to do them in their heads.
Note: Enter data for multiple drivers and select drivers from pull-down lists

34. Consider: What are the cost objects? What is the cost driver?
What is the rate per square foot?
What is each company’s proportion?
Is this a better method of distribution?
Identify cross subsidizations and free goods created by the Case A method
Show Slide #34: Consider:
Step 3: Case study – Allocate using various cost pools
What are the cost objects?
Cost objects are still companies A,B,C and D
What is the cost driver?
Cost driver = square ft..
What is the rate per square foot?
Rate = $100,000/50,000 sq... = $2/ square ft..
What is each company’s proportion?
Proportions: A=40%, B=2%, C=18%, D=40%
Is this a better method of distribution?
Square footage more closely approximates the consumption of facilities resources.
Identify cross subsidizations and free goods created by the Case A method:
B and C (small buildings) were subsidizing D (large building).
Size of building was essentially a free good.
Therefore, companies would try to get the largest building possible, whether they needed it or not.

35. Facilities Case C
At this point, the manager of Company D protested. Yes, he did have a large building, but it was not air conditioned. By his estimates, which were reasonably accurate, forty percent of the facilities expenditures were air conditioning related. These expenses included the additional electricity, maintenance and repair needed to keep the air conditioning units running.
Show Slide #35: Facilities Case C
Step 3: Case study – Allocate using various cost pools
Data for facilities case C:
Note: This should be used with the allocation worksheet to develop expertise in allocation.
At this point, the manager of Company D protested.
Yes, he did have a large building, but it was not air conditioned.
By his estimates, which were reasonably accurate, forty percent of the facilities expenditures were air conditioning related.
These expenses included the additional electricity, maintenance and repair needed to keep the air conditioning units running.

36. Facilities Case C (Cont.)
Company D proposed dividing the Facilities Costs into two separate cost pools: one for Air-Conditioning related costs, and one for General Facilities costs. The General cost pool would be allocated on the basis of square footage, just as before. The Air Conditioning cost pool would be allocated on the basis of air conditioned square footage.
Show Slide #36: Facilities Case C (Cont.)
Step 3: Case study – Allocate using various cost pools
Data for facilities case C: (Cont.)
This case introduces the idea of forming two cost pools.
In the Allocation Spreadsheet, these will be two activities:
General Facilities costs and Air Conditioning costs.
With two activities, you will also need two drivers.
Company D proposed dividing the Facilities Costs into two separate cost pools: one for Air-Conditioning related costs, and one for General Facilities costs.
The General cost pool would be allocated on the basis of square footage, just as before. The Air Conditioning cost pool would be allocated on the basis of air conditioned square footage.
Square Footage
A/C Square Footage
Company A, B, C, and D
Company
Company
Company
Company A B C D
Square
Footage
20000
1000
9000
20000
A/C Square
10000
1000
9000
Footage

37. Company D’s Method Total Cost Pool $100K Air Conditioning General
Show Slide #37: Company D’s Method
Step 3: Case study – Allocate using various cost pools
Facilitator’s Note: Facilitate a discussion with learners on the illustration on the screen about the formation of the two pools and the allocation method. The drivers are air conditioned square footage and all square footage.
A/C sq. ft.
sq. ft.
Company Facility Cost

38. Allocation Spreadsheet
Define activities and assign cost to activities
Show Slide #38: Allocation Spreadsheet
Step 3: Case study – Allocate using various cost pools
Facilitator’s Note: Ensure learners are all in their worksheets when going over the following information on the next two slides.
These screenshots show how the cost pool can be divided into two different activities: general and air conditioning.
The total $100K is divided up: $60K to General and $40K to Air conditioning.
Additional cost driver data can be entered.
Note: Define activities and assign cost to activities
Note: Enter additional cost driver data
Enter additional cost driver data

39. Allocation Spreadsheet (Cont.)
Select drivers for each activity
Show Slide #39: Allocation Spreadsheet (Cont.)
Step 3: Case study – Allocate using various cost pools
These screen shots show how a different cost driver can be selected for each activity, resulting in a separate allocation for each activity.
The general activity is allocated on square footage, and the sum of all allocations is $60K.
The air conditioning activity is allocated on AC square footage, and the sum of all allocations is $40K.
Notice that Company D is not assigned any of the Air conditioning cost, because its building is not air conditioned.
View the total allocation for each Cost Object

40. Good Method Test Case A is a good method IF...
All buildings are the same
Case B is a good method IF...
All square feet are the same
Case C is a good method IF...
All general square feet are the same AND
All air conditioned square feet are the same
Show Slide #40: Good Method Test
Step 3: Case study – Allocate using various cost pools
Facilitator's Note: This is an animated slide, click on mouse or space bar for transition for examples. Ask learners to mention what method would be good before showing the answer to each case.
1st Mouse Click View:
Case A is a good method IF...
All buildings are the same
2nd Mouse Click View:
Case B is a good method IF...
All square feet are the same
3rd Mouse Click View:
Case C is a good method IF...
All general square feet are the same AND
All air conditioned square feet are the same

41. Don’t Forget Behavioral Impacts
What undesired behavior is encouraged with allocation by number of buildings?
Combining buildings one roof
Expanding buildings when new building might make more sense
Rejecting assignment to small building
In-fighting to occupy large air conditioned buildings
Show Slide #41: Don’t Forget Behavioral Impacts
Step 3: Case study – Allocate using various cost pools
Cost measurement will have behavioral impacts, so try to anticipate them. You are hoping for certain desired effects: decreased resource consumption.
There can also be undesired effects.
Facilitator’s Note: Ask learners before displaying answers what undesired behavior is encouraged with allocation by number of buildings?
Mouse Click View:
Combining buildings one roof
Expanding buildings when new building might make more sense
Rejecting assignment to small building
In-fighting to occupy large air conditioned buildings

42. LSA #3 Check on Learning
Q1. What is the new rate per square foot? A1. New rate per square foot = $1.20 = $60,000/50,000 square ft.. *Allocation for each: A = $24K, B = $1.2K, C = $10.8K, D = $24K Q2. What is the rate per air conditioned square foot? Rate per A/C Square foot= $2.00 = $40,000/20,000 AC square foot A2. Allocation for each: A = $20K, B = $2K, C = $18k, D = $0K
Show Slide #42: LSA #3 Check on Learning
Facilitator’s Note: Ask check on learning question, facilitate discussion on answers given.
Q1. What is the new rate per square foot?
A1. New rate per square foot = $1.20 = $60,000/50,000 square ft..
*Allocation for each: A = $24K, B = $1.2K, C = $10.8K, D = $24K
Q2. What is the rate per air conditioned square foot? Rate per A/C Square foot= $2.00 = $40,000/20,000 AC square foot
A2. Allocation for each: A = $20K, B = $2K, C = $18k, D = $0K
Facilitator’s Note: Continue Check on Learning on next slide

43. LSA #3 Check on Learning (Cont.)
Q3. What is the total allocation by square foot?
A3. Total Allocation for each: A=$44k, B=$3.2K, C=$28.8K, D=$24K
Q4. Identify any cross subsidizations and free goods created by Case B’s method.
A4. D (large, non-AC building) was subsidizing A, B, and C’s AC buildings
Show Slide #43: LSA #3 Check on Learning
Check on Learning (Cont.)
Q3. What is the total allocation by square foot?
A3. Total Allocation for each: A=$44k, B=$3.2K, C=$28.8K, D=$24K
Q4. Identify any cross subsidizations and free goods created by Case B’s method.
A4. D (large, non-AC building) was subsidizing A, B, and C’s AC buildings
Facilitator’s Note: Continue Check on Learning on next slide

44. LSA #3 Check on Learning (Cont.)
Q5. Is this a better method of distribution? A5. It more closely represents the consumption of facilities resources than either buildings or square footage alone. Q6. Why might this method not reflect true cost? A6. This method might not reflect true cost if there are any differences in the A/C square footage. (Ceiling height, insulation, use of building, etc.)
Show Slide #44: LSA #3 Check on Learning
Check on Learning (Cont.)
Q5. Is this a better method of distribution?
A5. It more closely represents the consumption of facilities resources than either buildings or square footage alone.
Q6. Why might this method not reflect true cost?
A6. This method might not reflect true cost if there are any differences in the A/C square footage. (Ceiling height, insulation, use of building, etc.)

45. LSA #3 Summary
During this part of the lesson we conducted 3 separate facilities case studies utilizing the allocation excel worksheet, at the same time we used different considerations, different allocation methods, and concluded with conducting a few good method test.
Show Slide #45: LSA #3 Summary
Facilitator's Note: During this part of the lesson we conducted 3 separate facilities case studies utilizing the allocation excel worksheet, at the same time we used different considerations, different allocation methods, and concluded with conducting a few good method test.

46. Practical Exercises / Review
Show Slide #46: Practical Exercise / Review
Practical Exercise / Review: 8.2 Practical Exercise Calculate Cost of a Service with Single Pool
Method of Instruction: Practical Exercise
Facilitator's to Learner Ratio: 2:25
Time of Instruction: 00 hrs. / 20 min.
Media: Handouts
Facilitator’s Note: This is a run self-study exercise. You will use the handouts to complete your practical exercises in this segment. You will enter data and answer the questions to complete PE Cal Cost of a Service with Single Pool.
Special Instructions: Ensure Learners have access to PE Cal Cost of a Service with Single Pool and all related material to complete the self-study practical exercise.
Objectives: With at least 80% accuracy (70% for international Learners): Learners as individuals will answer the questions in the PE Cal Cost of a Service with Single Pool, using the Cal Cost of a Service with Single Pool handout and Excel 8.2 Cal Cost of a Service with Single Pool for discussion and its answers.
Facilitator’s Material: Each primary Facilitator's should possess a lesson plan, slide deck, course handouts, practical exercise with answer key, summary worksheet containing FM 1-06 (Financial Management Operations), excel template and lesson created notes.
Learner’s Material: Learners should possess course handouts, self-study practical exercise and handout titled PE/HO Cal Cost of a Service with Single Pool, summary worksheet containing FM 1-06 (Financial Management Operations), Excel 8.2 Cal Cost of a Service with Single Pool with access to Bb, and standard classroom supplies. 
Materials Needed:
Excel 8.2 Cal Cost of a Service with Single Pool
Practical Exercise and Handout titled: Cal Cost of a Service with Single Pool
*Pen Or Pencil
*Blank Paper
Note: (* Learner responsibility)
Procedures/Instructions:
All situations have one correct answer.
You will complete this PE immediately following the class on Calculate Cost of a Service-Job with Single Cost Pool and Various Drivers.
You will have 10 minutes for completion of this practical exercise, and 10 minutes for a review.
Be prepared to go over the entries and individual solutions for each question.
General Information: Follow the steps in the learner’s version of the worksheet, complete the PE by calculating and finding the answers to the individual exercises in the PE listed below. Encourage the learners to do this as individuals, and that they will have time to complete this practical exercise, followed by a review at the completion.
#1 AJFPC101.1
Based on the pertinent facts given in the PE,
What is the total amount of expenses allocated to the Automotive Department (rounded to the nearest dollar) if;
Administrative costs for the college were $150,000
Maintenance expenses were $70,000
and utilities were $85,000?
Instructional Lead-in: Given the particular situations in the exercises of the PE, you will need to calculate the answers to AJFPC101.1.
Feedback: AAR will be conducted after the PE, along with a Learner end of course critique will be conducted at the end of the course.
Facilitator’s Note: If you experience difficulties, ask the Facilitator‘s or assistant Facilitator's for immediate assistance or help.
Requirements:
Learners conduct their own work.
Enter relevant report data to answer questions in the PE by utilizing the excel worksheet.
Practical Exercise PE Cal Cost of a Service with Single Pool
8.2 Cal Cost of a Service with Single Pool worksheet
Cal Cost of a Service with Single Pool
Exercise AJFPC101.1
Evaluation: To obtain a "Go" in this PE, you must:
1. Correctly as a individual answer and fill out the answers in the PE utilizing the excel worksheet.
2. Calculate and compute the answers to the situation. 3. Be prepare to present the your answers during the review
Facilitator’s Note: This begins the self-study practical exercise. Learners are on their own at this point.
Commence Practical Exercise:
Practical Exercise Solution/Answer Key: 8.2 Calculate Cost of a Service with Single Pool
Solution AJFPC101.1
Activity Electronics Automotive Computers Plumbing Total
Administrative $22,500 30,000 82,500 15, ,000
Maintenance $21,000 17,500 26, , ,000
Utilities $25,500 21,250 32,583 5, ,000
Total $69,000 68, ,917 25, ,000

47. TLO Summary
Action: Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Identify Three Methods of Distribution
Calculate Cost of a Service/Job
Conduct Case Study – Allocate Using Various Cost Pools
Show Slide #48: TLO Summary
Facilitator’s Note: Restate the TLO
Action: Calculate Cost of a Service/Job with Single Cost Pool and Various Drivers
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Identify Three Methods of Distribution
Calculate Cost of a Service/Job
Conduct Case Study – Allocate Using Various Cost Pools
“Or”
Facilitator's at this time, have one learner from each group to explain the most important take away to them from this lesson. Facilitate a discussion on each answer.