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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
- safety procedures
- 2. Cost of transport to jobs
- Replacement of tools
- Protective clothing
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