ACCT2522_Week3_LectureSlides_6

ACCT2522_Week3_Lectu - Value Creation for Customer Cost Lecture 3 Managing Costs I Overhead Costs What costs are assigned to responsibility centres

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1 Lecture 3: Managing Costs I: Overhead Costs Learning Objectives Explain the nature of overhead costs & other indirect costs Describe the general principles for assigning overhead costs Assign overhead costs to products using differen LO1 LO2 2 Assign overhead costs to products using different overhead rates (ABC next week) Explain relevant issues in estimating overhead rates Discuss the general principles and reasons for allocating indirect costs to responsibility centres Allocate support department costs to producing departments LO3 LO4 LO5 LO6 Lecture Outline 1. Overhead cost overview. 2. Overhead assignment methods: Factorywide method 3 Department method 3. Issues in estimating OH rates 4. Allocating support department costs: Direct method Sequential method Reciprocal method Value Creation for Customer: Cost What costs are assigned to responsibility centres and products? How? Lecture 3 4 How are costs assigned to products using ABC? How to monitor and control costs? Lecture 4 Lecture 5 What COSTS can potentially be assigned to products? (Wk 2: Costs classified based on function) Production Costs Direct Materials 5 Direct Labour How do we assign direct material and labour costs? Cost Assignment Methods Cost of resources Direct tracing Driver tracing Allocation DM and DL 6 Cost object: Product Physical observation Causal relationship Assumed relationship
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2 (Wk 2: Costs classified based on function) Production Costs Direct Materials & Direct Labour Manufacturing Overhead What COSTS can potentially be assigned to products? Manufacturing Overhead (1) cannot be directly traced to the cost object; (2) can be directly traced to the cost object but it is: (a) not economically feasible to do so; or (b) more appropriate to treat this cost as a cost of all output. How do we assign these MOH? 7 Cost Assignment Methods Cost of resources Direct tracing Driver tracing Allocation DM and DL Manufacturing Overheads Indirect Costs 8 Cost object: Product Physical observation Causal relationship Assumed relationship Other types of OH costs? Costs potentially assigned to products Manufacturing overhead costs Non production costs LO1 9 Non-production costs Cost of responsibility centres Importance of defining COST OBJECT! Assigning overhead costs: Some general principles LO2 Resources Contemporary MAS Resources Traditional MAS Activities Cost Object Cost Pool (s) Cost Object Cost Allocation Base/Driver Cost Driver/Allocation Base Assigning overhead costs: Some general principles Resources Rent Utilities insurance Machine dep Repair & Maintenance Cost Pool(s) Cost Object Cost Allocation Base/Driver Cost Pool 1 Cost Pool 2 Product Machine hours Sq metres Assigning overhead costs: Some general principles A cost pool a collection of costs that are to be allocated to cost objects Have a common allocation base 12 Cost allocation base some fact or variable that is used to allocate costs in a cost pool to cost object
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This note was uploaded on 07/13/2011 for the course ACCT 2522 at University of New South Wales.

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ACCT2522_Week3_Lectu - Value Creation for Customer Cost Lecture 3 Managing Costs I Overhead Costs What costs are assigned to responsibility centres

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