lec 9 - full costing Flashcards
direct fost
cost can be specifically and exclusivley ID w a given cost object
direct cost aka
prime cost
direct cost example
cost of material
direct labour
indirect cost
cannot be specifically and exc;svley ID w a given cost object
indirect costs aka
overheads
how are indirect costsd assigned to csot objects
basis of allocation
easy way to think of how to ID direct and indirect cost
cost you can easily asisng to somethign - dirct
not sure you can easily assign to something = indirect
overhead cost are allocated
allocated indirect costs
total product cost =what 5 things
direct material
direct labour
prime costs - direct costs
manufacturing over heads
total manufacturing costs
non manufacturing overheads
why is costing in total product cost so important
infleunces pricing which impacts whole company
product cost per unit includes both
direct and indirect costs
manudacturing OH
Any indirect cost that relates to manunfacturing of product
e.g depreciation of machinery
non manufacturing overhead
indirect cost that doesnt relate to manufacturing process
e.g. HR Salary Cost
traditional cost drivers
labour hours
machine hours
2 stes of allocation
identify cost drivers
absotroption costing
if a product needs e.g. mroe labour hours to be produced it would incur more
overhead
do we use both traditional cost drivers
no
either one or the other
what is absorption
processof allocating overheads to cost objects
e.g £300 to product B £100 to product C
Overhead absorption rate
rate overheads attributed to cost objects based on cost driver
e.g. absorption rate is £10 per direct labour hour and product x needs 1 labour hour how much will it be charged in overhead
£10
what are the two systems for absorptionr ates
blanket overhead
department overheafd
what is blankt overhead absorption rate
same asorption rate given to the whole organisation
what is the department overhead absorption rate
diff absorption rates used in diff dpts of organisation
how do we assign indirect costs usign the blanket overhead approach
i.e what is overhead rate
cost driver = number of direct labour hours
total OH = 900K
Direct labour hours = 60K
overhead rate = total OH/Direct labour hours
eeryoe uses £15ho
how do we assign indirect costs using the departmental overhead rate
OH per department / direct labour hours to get your rate
then pick whic you want to use
how do we decide whihc absorption ragte to use
if product uses 100% of a single dpt resources to use we use that dpt
but if goes through multiple dpt use blanket
if we use the blanket overhead rate what will be the effect
charge will be higher then dpt
steps to calculate overhead absorption rate per unit (trad method using cost drivers
1 = total OH /total hours (cost driver)
2= multiply answer by each differnt total hour
3= divide absorbed OH by the units to get OH per unit
break
why do we have activity based costing
to idenitfy csot driver for each activity - as cost drivers practically cant just be limited to labour and manufacturing
why can activity based costingbe hard
one product may have so many cost activities so need to find cost driver for each one
what do we ignore in the ABC model
labour and machine hours
and dont look at total OH costs but each item thing individually
how do we calculate and allocate overheads in the ABC activity model
idenitfy cost and cost driver e.g.store costs and store requisitions
divide cost by cost driver to get individual overhead rate
multiply each over head rate by product e.g oh rate for store cost * store requisitions for product x
reppeat for alk products and differnt costs
then add up all of the costs for each product to get toal overhead of each product
