Problem: Incorrect overhead allocation method 2. Cause: Internal: Incorrect method adopted External: Owners are mandated to purchase the liability insurance‚ economic growth; restrict by government (heavy regulation) low autonomy 3. Influence: Target become hard to be reached‚ low incentives‚ wrong decision shall be made 4. Conclusion: Replace the current method with an alternative method: relative i.e. using costing method which have different bases for respective overhead generated from departments
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Jane Doe Date: March 1‚ 2012 RE: Allocation Options for Fixed Manufacturing Overhead Costs Dear Mr. Oray‚ After researching the different methods allowed for you to use in allocating the fixed manufacturing costs to the work in process and finished goods I have come to the conclusion that normal capacity is the best method for your business. First I will define theoretical‚ practical and normal capacity and then I will explain to you which allocation method must be used for financial statement
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THE MANAGEMENT OF OVERHEAD COSTS IN CONSTRUCTION COMPANIES Brian Eksteen1 and David Rosenberg² ¹Professor of Construction Management‚ Faculty of Economic and Building Sciences‚ University of Port Elizabeth‚ P.O. Box 1600‚ Port Elizabeth‚ 6000‚ South Africa ²Senior Lecturer in Cost and Management Accounting‚ Faculty of Economic and Building Sciences‚ University of Port Elizabeth‚ P.O. Box 1600‚ Port Elizabeth‚ 6000‚ South Africa Costs not directly attributable to or recoverable from production
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Total DLH 2‚400 1‚440 720 320 4‚880 Plant Overhead $122‚000 DL rate/hour $30 Y oungstown has a tradition al cost sys tem. It calc ulates a p lant-wide overhead rate by dividing total overhead costs by total direct labor hours. Assume‚ for the calculations below‚ that plant overhead is a committed (fixed) cost during the year‚ but that direct labor is a variable cost. • Calculate the plant-wide overhead rate. Use this rate to assign overhead costs to products and calculate the profitability
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2‚400 1‚440 720 320 4880 Plant overhead $122‚000 D/L rate/hour $30 Youngstown has a traditional cost system. It calculates a plant-wide overhead rate by dividing total overhead costs by total direct labor hours. Assume‚ for the calculations below‚ that plant overhead is a committed (fixed) cost during the year‚ but that direct labor is a variable cost. 1. Calculate the plant-wide overhead rate. Use this rate to assign overhead costs to products and calculate the profitability
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Cost allocation for indirect costs Cost Pool – Set of costs that are added together before being allocated to cost objects on some common basis Cost Driver/ Allocation base Cost Object Cost Driver Rate = Total Costs in Pool/ Total Quantity of Driver Where total quantity of driver = practical capacity of driver Cost of excess capacity = Cost Driver Rate * Excess capacity Predetermined overhead rate - cost per unit of the allocation base used to charge overhead to products. Predetermined
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Overhead Allocation [pic] Overhead Allocation Overview In many businesses‚ the cost of overhead is substantially greater than direct costs‚ so the cost accountant must expend considerable attention on the proper method of allocating overhead to inventory. There are two types of overhead‚ which are administrative overhead and manufacturing overhead. Administrative overhead includes those costs not involved in the development or production of goods or services‚ such as the costs of front office
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have done above is a “full-cost” analysis. This is in contrast to a “direct-cost” analysis that ignores overhead costs. Is full cost the right metric for job profitability and customer profitability? What assumptions are we making about the variability of overhead costs when we do a “full-cost” analysis? By allocating the overhead costs to jobs and customers there is an implicit assumption that these are variable with the cost driver. In reality‚ some of the overhead costs are fixed‚ at least in the
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Allocation and Apportionment of Overheads / Job and Batch costing solution Question 1 (a) Overhead Analysis Sheet Overheads Basis of apportionment Total Machining Assembly Stores Canteen Indirect Wages Number of indirect employees 232000 ( X 232000) ( X 232000) ( X 232000) ( X 232000) 61867 123733 30933 15467 Machinery Maintenance Budgeted machine hours ( X 94000) ( X 94000) 94000 87935 6065 Machinery Insurance Value of machinery ( X 9050) ( X 9050) 9020 6380 2640 Rent
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Over the year‚ the company has extended their product range to pumps and flow controllers. The main learning outcome from analyzing the case study is manufacturing overhead cost allocation. Exhibit 2 in the case study shows pumps has a highest manufacturing overhead cost compare to valves and flow controller. The common overhead cost drivers in the production are machine hours‚ production runs and hours of engineering work. The key issue in this case study is the gross margin on pump sales is 19
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