Lecture 3 Flashcards
Assignment of indirect costs to cost objects
Allocate to cost object using an allocation base
Cost Driver
The forces that cause the occurrence of the cost
Allocation Base
used to allocate indirect costs to cost objects. must be measurable
Steps to allocate indirect costs to a cost object
1 accumulate the actual indirect cost 2 determine the allocation base 3 measure the actual units of the allocation base 4 allocation rate (1)/(3) 5 indirect costs allocated
Actual costing
Directly tracing ALL costs to the cost objects
Normal Costing
-predict indirect mfg costs and allocation base
-calc a predetermined MOHR= Budgeted ID Mcost/ budgeted allocation base
-use to allocate ID Mcost
Adjust at the end of the period
Choices of Adjustment: Adjusted Rate
- Compute what the rate ought to have been
- re-cost everything
- not feasible without computers
Choices of Adjustment: Close to COGS
-Least accurate but quick and easy
Choice of Adjustment: Pro-Rata
A: allocate difference across WIP FG and COGS by relative proportion of current period mfg OH in each account
B: allocate the difference across WIP FG and COGS proportionately by the relative size of each account
What is job costing?
the cost of a product or service obtained by assigning costs to a distinct unit or batch of a product or service
Who is job costing suitable for?
- Produce unique or highly variable goods and services
- Lower volume
Cost object for job costing
usually costs are accumulated for each job. Unit cost can be derived from the job record
Threats to Accuracy of job costing
- mismeaurement / misrecording of costs of allocation base
- high proportion of indirect cost
- allocation base chosen does not reflect underlying driver of cost
