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What are some examples of production overheads in 1: Manufacturing business 2: Service business
1. Repair of machinery
rent of factory buildings
2. Cost of transport to jobs
Replacement of tools
Describe allocate and apportion?
Fair to all parties
representative of benefit
relatively quick to apply
Allocate; Means assign whole item of cost to single cost unit
Apportion; Means spread cost over two or more cost units
What are som methods of absorbing overheads?
Cost per direct labour hour
Cost per machine hour
Cost per € of labour cost
Cost per unit
Predetermined overhead rates
Describe Activity-based costing and its stages?
A method of allocating overhead costs to products and services.
Asks the question
: what drives cost?
1. Identify activities
2. Identify cost drivers that influence the cost of an activity
3. Create a cost pool for each activity
4. Allocate costs to products using drivers for each activity
Describe the traditional approach to flow of overhead costs and its stages?
Identify overhead costs and identify cost centres that accumulate costs
1. Allocate indirect costs to cost cetres
2. Apportion service cost centre to production cost centres
3. Absorb overhead cost into product