Cost and Management Accounting (Cma)

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Group 8

Umer Rehman B/A-FAL09-018

Amna Kiran B/A-FAL09-025 Huma Ahsan B/A-FAL09-003 Sabir Ayoub B/A-FAL09-046

19 Dec, 2011


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Building-block concepts of costing systems

Comparison between Job-Order Costing &

Activity Based Costing

Activity-Based Costing in a Job-Order

Environment

Examples


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Cost object

Direct costsof a cost object

Indirect costsof a cost object


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Cost Assignment

DirectCosts

IndirectCosts

Cost Tracing

Cost Allocation

CostObject


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Cost pool

Cost allocation base


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Step 1:Identify the chosen cost object.

Step 2:

Identify the direct costs of the job.

Step 3:Select the cost-allocation bases.

Step 4:Identify the indirect costs.


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Step 5:Compute the rate per unit.

Step 6:Compute the indirect costs.

Step 7:

Compute the total cost of the job.


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Job cost record

Materials requisition record

Labor time record


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Directmaterial

Directlabor

Manufacturing

overhead (OH)Applied to each

job using apredetermined

rate


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Manufacturing

Overhead

Job No. 1

Job No. 2

Job No. 3

Charge

direct

material

and direct

labor costs

to each job

as work isperformed.

Direct Materials

Direct Labor


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Apply

overhead to

each job

using a

predeter-

mined rate.

Direct Materials

Direct Labor

Job No. 1

Job No. 2

Job No. 3Manufacturing

Overhead


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Cost Objects

Activities

Consumption ofResources

Cost


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Define Activities, Activity cost pools and

activity measures.

Assign overhead costs to activity costpools.

Calculate activity rates.

Assign overhead costs to cost objectsusing activity rates and activity measures.

Prepare management reports.


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-Costs are assigned according tojobs performed.

-Costs are allocated by jobs orbatch.

-A single or plant wide rate calleda predetermined overhead rateis used:

Job Order = Direct Labor Costs

-An overhead cost allocationsystem that allocates overheadto multiple activity cost pools

and assigns the activity costpools to products or services bymeans of cost drivers thatrepresent the activities used.

-Multiple allocation bases

-Allocates overheads accurately


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Costs in an activity center

Nonvalueadded

Key activities must be identified.

Valueadded


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Products differ greatly in volume and manufacturingcomplexity

Products lines are

numerous

diverse

require differing degrees of support services

Overhead costs constitute a significant portion of total costs

The manufacturing process or number of products haschanged significantly

Production or marketing managers are ignoring data providedexisting system


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Amount of direct labor used in many industrieshas decreased

Total overhead from depreciation onequipment, utilities, repairs, maintenance hasincreased


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More accurate product costing whichnecessitates:

i. More cost pools used to assign overhead

ii. Enhanced control over overhead

iii. Better management decisions


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Cost and Management Accounting (Cma)

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