Overhead costs can be anything that is that is not associated with direct materials or direct labor (Noreen-Brewer 2nd Ed, pg.176). As stated Toll Brothers, headquartered in Horsham, PA,. is in the business of designing, building, marketing, and arranging financing for single family detached and attached home in luxury residential communities (10K,pg.1). Some of these overhead costs would include operations of (10k, pg.2):
House component assembly
They also develop, own and operate golf courses and country clubs associated with the master planned communities they work on and even invest in joint ventures to develop land for the sole use of the venture participants. All of the above will amount to overhead costs that must be covered under the company overhead. “We own a manufacturing facility of approximately 300,000 square feet located in Morrisville, Pennsylvania, a manufacturing facility of approximately 186,000 square feet located in Emporia, Virginia and a manufacturing facility of approximately 134,000 square feet in Knox, Indiana.”(10K,pg.17)
Many of these costs are fixed and involved employment of supervisors and managers that work on salary which also add to the overhead costs. “We lease, from an unrelated third party, a facility of approximately 144,000 square feet located in Fairless Hills, Pennsylvania. At these facilities, we manufacture open wall panels, roof and floor trusses, and certain interior and exterior millwork to supply a portion of our construction needs. These facilities supply components used in our North, Mid-Atlantic and South geographic segments. These operations also permit us to purchase wholesale lumber, plywood, windows, doors, certain other interior and exterior millwork and other building materials to supply to our communities. We believe that increased efficiencies, cost savings and productivity result from the operation of these plants and from the wholesale purchase of materials.”(10k,pg.17) The equipment used for the manufacturing, property taxes, factory insurance, depreciation of property value and utilities required to run the company will also contribute. Moreover, direct land acquisition, development, construction costs, costs with interest, real estate taxes and direct overhead related to development and construction are contributing factors to overhead.
(1). Wikipedia, (n.d). Toll Brothers, Inc, retrieved from http://en.wikipedia.org/wiki/Toll_Brothers (2) Noreen,Eric,et. al (2010). MANAGERIAL ACCOUNTING FOR MANAGERS 2nd EDITION. McGraw-Hill.
Week 3: Discussion
Managerial Accounting (MKTG711)
September 13, 2013
Question #1: Would Toll Brothers be more likely to use process costing or job-order costing? Why?
Process costing is utilized when a company produces many units of the same product, making one unit undistinguishable from the next. Because of this identical nature, the same average cost per unit can be assigned. Contrary to this technique, a job-order costing system is used when companies produce many different products or when they are “made to order”. Because each unit is unique, job costs must be assigned and traced to each specific job in order to determine the total cost of each unit.
Based on this information, Toll Brothers would be more likely to use job-order costing. As stated in Toll Brother’s Form 10-K for 2010, “Each of our single-family detached-home communities offers several home plans, with the opportunity for home buyers to select various exterior styles. We design each community to fit existing land characteristics. We strive to achieve diversity among architectural styles within a community by offering…