Week 3 Flashcards
Objective of a Job Order Cost System
To compute the cost per job.
Measures costs for each job completed - not for set time periods.
Costs are assigned to each job or batch
To start a job you need 3 things:
Warehouse
Workshop
Displaying units store
Purpose of Cost allocation
Sharing out indirect costs over different cost objects.
This helps provide information for economic decisions, motivates managers and other employees, justifying costs or computing reimbursements, and measuring income and assets.
Normal Costing
Allocated indirect costs based on the budgeted indirect cost rates times the actual quantities of the cost allocation base.
Actual costing
Allocates indirect costs based on the actual indirect cost rates times the actual quantities of the cost allocation base.
CAB
Cost allocation base = cost driver
Normal costing working allocation rate
Budgeted allocation rate (BR) = budgeted total OH / Budgeted total lvl of CAB
Normal costing working allocation
BR (budgeted rate) x AQ (actual quantity
Actual costing allocation rate
Actual allocation rate (AR) = actual total OH / actual total lvl of CAB
Actual costing allocation
AR (actual rate) x AQ (actual quantity)
Criteria to guide cost allocations
- cause and effect: direct relationship between activity and creation of costs incurred.
- benefits received
- fairness / equity
- ability to bear
Assessing alternative CAB’s
Check: use linear regression to check which potential CAB is related best to the OH
- Economic plausibility
- Check for linearity
- Goodness of fit
- Significance of the independent variable
Direct materials and direct labour are _____ costs?
Prime costs
If allocated OH > actual OH
Over allocated OH
Allocated OH < Actual OH
Under allocated OH
