{"id":130,"date":"2021-01-26T22:11:51","date_gmt":"2021-01-26T22:11:51","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=130"},"modified":"2021-07-29T19:01:24","modified_gmt":"2021-07-29T19:01:24","slug":"defining-cost-pools","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/defining-cost-pools\/","title":{"raw":"Defining Cost Pools","rendered":"Defining Cost Pools"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Identify Departments, Cost Pools, and Cost Drivers<\/li>\r\n<\/ul>\r\n<\/div>\r\nA cost pool is a collection of costs that are driven by a major cost driver. In this section, we will use established company departments as cost pools.\r\n\r\nYour research has identified that Yore Company has two main departments in the production facility: assembly, which is done by machine, and finishing, which is done by hand and is therefore labor-intensive.\r\n\r\nThe cost breakdown is as follows:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"2\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Fixed Manufacturing Overhead by Department<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Assembly<\/td>\r\n<td class=\"r\">$ 141,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Finishing<\/td>\r\n<td class=\"r\">47,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Manufacturing Overhead<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 188,000.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nTherefore, using departments to collect costs, this production process has two cost pools: assembly and finishing.\r\n\r\nLet\u2019s say that the production manager for the assembly department and the production manager for the finishing department are trying to decide between using machine hours as a base or using labor hours as a base. The assembly department is driven by machine hours, as it is heavily automated. However, the finishing department is driven by labor hours, since it is detailed work done by hand.\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Cost Pool<\/th>\r\n<th scope=\"col\"><\/th>\r\n<th scope=\"col\">Cost Driver<\/th>\r\n<th scope=\"col\"><\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span>Assembly<\/td>\r\n<td><\/td>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span>Machine Hours<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finishing<\/td>\r\n<td><\/td>\r\n<td>Labor<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWorking with the financial accountants, the managerial accountants then capture fixed manufacturing overhead by cost pool (department) so that it can be allocated by different methods. We\u2019ll allocate the costs associated with assembling the purses by machine-hours, and we\u2019ll allocate the costs of finishing the purses according to labor.\r\n\r\n<img class=\"aligncenter\" src=\"https:\/\/lh6.googleusercontent.com\/JOwpRQ3-64A4CDDOpauhoVmDKAPpm2jJoaxylgstPZ065sg5PozXh7Oqwcfime4pOp9wH7xZUufUINR30fNkeanQnfBAJNVYnymtScP17QjkICo3FSytZMjFeeUj5k6ePPsw_Zfu\" width=\"933\" height=\"525\" \/>\r\n\r\nBefore we calculate the allocations by department, let\u2019s review your understanding of cost pools and cost drivers.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]218830[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Identify Departments, Cost Pools, and Cost Drivers<\/li>\n<\/ul>\n<\/div>\n<p>A cost pool is a collection of costs that are driven by a major cost driver. In this section, we will use established company departments as cost pools.<\/p>\n<p>Your research has identified that Yore Company has two main departments in the production facility: assembly, which is done by machine, and finishing, which is done by hand and is therefore labor-intensive.<\/p>\n<p>The cost breakdown is as follows:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"2\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Fixed Manufacturing Overhead by Department<\/strong><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Assembly<\/td>\n<td class=\"r\">$ 141,000.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Finishing<\/td>\n<td class=\"r\">47,000.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Manufacturing Overhead<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 188,000.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Therefore, using departments to collect costs, this production process has two cost pools: assembly and finishing.<\/p>\n<p>Let\u2019s say that the production manager for the assembly department and the production manager for the finishing department are trying to decide between using machine hours as a base or using labor hours as a base. The assembly department is driven by machine hours, as it is heavily automated. However, the finishing department is driven by labor hours, since it is detailed work done by hand.<\/p>\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Cost Pool<\/th>\n<th scope=\"col\"><\/th>\n<th scope=\"col\">Cost Driver<\/th>\n<th scope=\"col\"><\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span>Assembly<\/td>\n<td><\/td>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span>Machine Hours<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Finishing<\/td>\n<td><\/td>\n<td>Labor<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Working with the financial accountants, the managerial accountants then capture fixed manufacturing overhead by cost pool (department) so that it can be allocated by different methods. We\u2019ll allocate the costs associated with assembling the purses by machine-hours, and we\u2019ll allocate the costs of finishing the purses according to labor.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/lh6.googleusercontent.com\/JOwpRQ3-64A4CDDOpauhoVmDKAPpm2jJoaxylgstPZ065sg5PozXh7Oqwcfime4pOp9wH7xZUufUINR30fNkeanQnfBAJNVYnymtScP17QjkICo3FSytZMjFeeUj5k6ePPsw_Zfu\" width=\"933\" height=\"525\" alt=\"image\" \/><\/p>\n<p>Before we calculate the allocations by department, let\u2019s review your understanding of cost pools and cost drivers.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm218830\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=218830&theme=oea&iframe_resize_id=ohm218830\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-130\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Defining Cost Pools. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":6,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Defining Cost Pools\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-130","chapter","type-chapter","status-publish","hentry"],"part":27,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/130","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":9,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/130\/revisions"}],"predecessor-version":[{"id":2397,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/130\/revisions\/2397"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/27"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/130\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/media?parent=130"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=130"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=130"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/license?post=130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}