Job Order & Activity Based Costing

Summarised By Dr. Amani Hussein

2/29/2012

Job Order
1.At the beginning of the year we estimate the overhead for the year and the allocation base for the year we calculate the single rate as follows: Overhead rate = Estimated overhead costs Estimated allocation base

2. During the year this rate used to calculate the applied /allocated overhead Overhead rate X Actual hours used to produce the Job
3.At the end of the year we compare the applied overhead with actual overhead
2 Summarised By Dr. Amani Hussein 2/29/2012

Activity Based Costing

Every activity has its: Own overhead cost pool ( Bucket)

Own allocation base

Own overhead rate
Activity overhead rate = Estimated overhead cost of the activity Estimated allocation base of the activity

Allocation base is chosen based on a cause and

effect relationship with activity overhead cost

3 Summarised By Dr. Amani Hussein 2/29/2012

Activity Based Costing

In case we have general overhead or we did not assigned

it to the activity yet we have to do a first stage allocation based on a given percentage as follows

The Overhead cost Wages & Salaries $200,000

Other Overhead Cost $100,000 By Dr. Amani Hussein Summarised 4

Activity 1

Activity 2

Activity 3

30%

20%

50%

40%

30%

30%
2/29/2012

Activity Based Costing

we assign total overhead to every activity as follows:
The Overhead cost Wages & Salaries $200,000 Other Overhead Cost $100,000

Activity 1
30% X 200,000= $60,000

Activity 2
20% X200,000= $40,000

Activity 3
50% X200,000= $100,000

40% X100,000= $40,000

30% X100,000= $30,000

30% X100,000= $30,000

Total $100,000 assigned to By Dr. Amani Hussein Summarised 5 every

$70,000

$130,000
2/29/2012

Activity Based Costing

Every Activity has its own allocation base: Assume for Activity 1 labor hours 10,000 LH Activity 1 overhead rate = $100,000 = 10 per LH 10,000 LH Assume for Activity 2 Machine Hours 14,000 MH

Activity 2 overhead rate = $70,000 = 5per MH 14,000 MH

6 Summarised By Dr. Amani Hussein 2/29/2012

Activity Based Costing

Assume for Activity No. of Parts 20,000 Parts

Activity 3 overhead rate = $130,000 = 6.5per part 20,000 part

Summarised By Dr. Amani Hussein

2/29/2012