Tutorial 4 - THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF...

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1 THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF ACCOUNTING ACCT2522 Management Accounting: Process Improvement and Innovation Session 2, 2009 Tutorial Week 4 - Managing Cost I: A Closer Look at Overhead Costs TEACHING KIT Overall Theme A Closer Look at Overhead Costs: We aim to explain the cost allocation problem and discuss how this problem is resolved. In doing this, we will be discussing how overhead costs are allocated using conventional accounting methods. The focus is placed the use of a single plantwide overhead rate and departmental overhead rates to allocate costs to products. As part of the cost allocation process, we will also be looking at how support department costs are allocated to manufacturing departments. Desired Learning Outcomes and Essential readings Langfield-Smith, K., H. Thorne and R.W. Hilton (2009). Management Accounting 5e: Information for Managing and Creating Value , 5 th ed, McGraw-Hill Australia Pty Ltd. Chapter 7 1. Explain the nature of overhead costs and other indirect costs 2. Describe the general principles for allocating indirect costs to cost objects 3. Allocate overhead costs to products, using plantwide and departmental overhead rates 4. Explain relevant issues in estimating overhead rates 5. Discuss the general principles and reasons for allocating indirect costs to responsibility centres 6. Allocate support department costs to production departments using the direct and reciprocal services method.
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