Cost Allocation

 Essay regarding Cost Allowance

Price allocation to get indirect costs

Cost Pool – Set of costs which might be added together before being allocated to expense objects upon some common basis

Price Driver/ Share base

Price Object

Cost Driver Rate = Total Costs in Pool/ Total Quantity of Driver Where total quantity of driver = useful capacity of driver

Cost of excess capacity = Cost Driver Rate * Excess capacity

Predetermined over head rate - cost per unit from the allocation basic used to demand overhead to products.

Established overhead rate=Estimated overhead/Estimated allocation base

One-stage allocation system

* Single cost pool area – Whole manufacturing expense

2. Single portion base as well as cost driver-Direct materials cost/ Direct labor hours/ Direct labor cost/ Machine hours/ etc . 2. Predetermined Cost to do business Rate or perhaps Burden charge = Total manufacturing expense / X * Exactly where X sama dengan Total Immediate materials price or Total Direct labor hours or perhaps Total Immediate labor cost or Total machine hours used 5. Total product costs of your = Immediate materials cost + Direct labor cost + allocated overhead expense where given overhead = Burden level * # of machine hours employed by A

Downside: Assumes that every products consume direct labor (or various other driver) and overhead inside the same percentage.

Two-stage allowance system and Product Costing

Overhead costs happen to be divided into different cost regularly. Each expense pool provides a cost rider (allocation base). * Divide manufacturing expense into multiple cost pool area (e. g. create two cost pools whose costs add up to total manufacturing over head cost) 2. Calculate burden rate

Cost pools| Cost Drivers

Overhead associated with direct materials| Direct elements Cost| Over head related to immediate labor hours| Direct labor hours| Cost to do business related to immediate labor cost| Direct labor cost| Expense related to machine-hours| Machine hours

Advantage:

5. Provides many accurate price information

5. Cost program captures variations in the way over head is used in different parts of the availability process

Disadvantage:

* Cost of the system redesign may be excessive.

The selection of an optimal cost product is based on trade-offs between increased accuracy as well as the cost of system redesign.

Predetermined Overhead Rate or Burden rate = Overhead price related to direct materials/ Total Direct materials cost OR Overhead expense related to immediate labor hours/ Total Immediate labor several hours OR Over head cost linked to direct labor cost/ Total Direct labor cost OR Overhead expense related to equipment hours/ Total machine hours used

Total product costs of A = Direct materials cost & Direct labor cost & allocated overhead cost exactly where allocated overhead = Burden rate every machine hour * # of equipment hours employed by A & Burden rate per direct labor bucks * immediate labor cost of A

Departmental overhead level - Costs based on a department's direct and indirect overhead costs plus some measure of the department's activity, such as the department's machine several hours. Departmental rates are more exact than plant-wide rates each time a company manufactures diverse products requiring a variety of processes.

Set aside overhead over a plantwide basis using machine hours – Burden price per machine hour = total overhead costs of all departments/ total machine hours employed by all departments

Allocate expense using division rate with machine hours as the allocation foundation - Burden rate every machine hour = Expenses of a department/ Machine several hours used by that department

Activity Based Being

1 . Identify activities, and identify overhead costs for each activity 2 . Discover the cost individuals for each activity

3. Figure out cost driver rates (cost per new driver unit)= activity overhead cost/ total drivers volume some. Allocate costs to cost objects

Overhead costs invested in A = cost drivers 1 price * price driver you volume for any + price driver a couple of rate * cost rider 2 quantity for A

HURUF Costs and Benefits

Costs are very substantial if:

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