Costing Systems

Question 1

What is the allocation process in Traditional Costing Systems?

Answer 1

1. Accumulate costs within production & non-production departments
2. Allocate non-production costs to production departments
3. Compute separate OH rates for each cost centre
4. Allocate production department costs to various products, services or customers (cost objects)
   Once costs allocated to departments, charge to cost objects.
   Total OH charged to all units proportionally.

Question 2

POHR =

Answer 2

Estimated Total Manufacturing OH Cost for coming period / Estimated Total Units in the Allocation Base for coming period

Question 3

What is the Traditional Costing System?

Answer 3

Uses volume-based second-stage drivers. Under allocated OH to low-volume products and over allocates OH to high-value products.
Useful when direct costs are dominant, info cost is high, low global competition intensity, and limited range of products produced.