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Cost Assignment (Why are cost accumulation systems important? (Internal…
Cost Assignment
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Cost allocation
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Indirect costs
'Cause and effect' allocation - the basis of allocation has a significant bearing on the value of the indirect cost
Activity-based costing
More accurate than traditional costing (products assigned proportion of overheads for which they are responsible)
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Standard Costs - Estimated/planned costs for a given output used in the budget. Differences between actual and planned costs can be investigated
OAR is based in units of apportionment. Remember to convert to cost per unit when calculating product cost
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Most companies use a budgeted overhead rate rather than calculating a new OAR each week or month. This can lead to under/over absorption of overheads which is written-off at the end of the period. Significant deviations might need to be investigated
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