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Cost object: an individual, distinct unit (often Cost object: masses of similar units
custom- made) = a job.
Ex: sculpture, painting; services Allocates costs among all the products
manufactured during that period.
IV 7 Steps Approach to Job Costing (Actual individual jobs ):
*Example
(1) Job No. 100
(Indirect labour: 300 working hours
Indirect manu.: 100 machine hours)
Direct material = $9 mil (3) Indirect Cost associated with each CAB
Direct manufacturing Total indirect labour cost = $800mil (CAB is working
labour = $7 mil hour)
Total indirect manufacturing= $100mil (CAB is
machine hour)
(4) CAB
Total working hour= 400h & Total machine hour =
200h
(5) Rate per unite of CAB
->Direct cost=
$......................+ Indirect labour cost rate + $ ...... mil/……….h=$2mil/h
$......................=
$16 mil Indirect manufacturing cost rate=
$......mil/……….h=$0.5mil
Actual indirect-cost rate (=actual indirect cost / actual total quantity of allocation base)
Units used
Budgeted indirect-cost rate (=budgeted indirect cost / budgeted total quantity of
allocation base) units used.
Budgeted rates are based on estimate made up to 12 months before actual costs are
incurred Adjustments needed End- of- Period Adjustments
o ___________________: *Allocated amount < Actual amount incurred
o ___________________: **Allocated amount > Actual amount incurred
Under- over- allocated indirect costs = Indirect costs incurred – Indirect costs allocated
The numerator reason (indirect cost): The shorter the period, the greater the influence of
seasonal patterns on the level of costs.
The denominator reason (quantity of the allocation base): The need to spread monthly
fixed indirect costs over fluctuating levels of output.