fi2 - Cost Classification Direct costsMaterials Labor...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Cost Classification Materials (if not highly perishable) are generally inventoried until put into production Direct labor can not be inventoried, but may be controllable by scheduling to meet production as required Accurate and timely scheduling is needed to minimize costs of idle inventories or wasted labor (motivation behind JIT and bottleneck management) Only those costs directly traceable to production
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Cost Classification (cont.) Indirect costs—overhead Will include indirect materials & labor (not specifically identified with production, such as general supplies, manager’s salary, janitorial services, etc.) Since these costs are not directly traceable, major problem is how to allocate overhead costs to production
Background image of page 2
Overhead Cost Allocation Identify cost pools—examples Engineering, supervision, facility costs, maintenance/janitorial, etc. Needed for production but not directly part of the finished product. Many of these costs are not “value-added” Estimate costs (budgeting process) Establish an allocation base This will be a “cost driver” for the pool (machine hours for machine-intensive production, labor hours for labor-intensive production, etc.)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Overhead Cost Allocation (cont.) Estimate quantity for allocation base How many labor hours budgeted, etc. Calculate cost allocation rate: Budgeted cost (pool) ------------------------ = Overhead Allocation Rate Budgeted Quantity
Background image of page 4
Overhead cost illustration Factory Manager Salary $ 60,000
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/11/2011 for the course ACG 2071 taught by Professor Sumbiznatch during the Spring '06 term at University of Florida.

Page1 / 18

fi2 - Cost Classification Direct costsMaterials Labor...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online