Any accountants in the house?
Discussion
Trying to learn this years material for my accounting exam tomorrow. Totally and utterly failing to get to grips with any of it at the moment.
Anyway, was wandering if any kind soul could possibly advise me as to whether this;
[quote=someoldaccountingexam]"It is relatively easy to attribute direct costs to products but any attempt at attributing indirect costs through absorption costing can only produce a broad approximation of the real cost of a product." Explain how absorption costing relates indirect production costs to products and discuss this statement. [/quote]
and this;
[quote=someotheroldexam]"Indirect overhead recovery is the most difficult aspect of attributing costs to a cost object; and even this approach cannot find the real cost of a product." Discuss this statement. [/quote]
Are infact the same question? ie: how do you go about attatching fixed overheads to product costs, and what are the pros and cons of doing this by absorbtion costing?
I just can't find anything in my text book about "indirect overhead recovery" at all. :(
This may be a completely retarded question, and i apologise if it is.
Thanks for any help,
Rob. :)
Anyway, was wandering if any kind soul could possibly advise me as to whether this;
[quote=someoldaccountingexam]"It is relatively easy to attribute direct costs to products but any attempt at attributing indirect costs through absorption costing can only produce a broad approximation of the real cost of a product." Explain how absorption costing relates indirect production costs to products and discuss this statement. [/quote]
and this;
[quote=someotheroldexam]"Indirect overhead recovery is the most difficult aspect of attributing costs to a cost object; and even this approach cannot find the real cost of a product." Discuss this statement. [/quote]
Are infact the same question? ie: how do you go about attatching fixed overheads to product costs, and what are the pros and cons of doing this by absorbtion costing?
I just can't find anything in my text book about "indirect overhead recovery" at all. :(
This may be a completely retarded question, and i apologise if it is.
Thanks for any help,
Rob. :)
I absolutely HATED cost accounting, which is why when I qualified I stayed in practise rather than go into industry.
However, to answer your question, the atribution of indirect overheads to different "cost centres" is tricky because there are multiple ways of doing it and no one way is correct.
An organisation which is essentially "office" based ( a bank for, instance)might atribute Light and Heat costs and a simple floor area basis. However, a manufacturing business would have to weight the split between those areas of the business which have the heaviest consumption.
However, to answer your question, the atribution of indirect overheads to different "cost centres" is tricky because there are multiple ways of doing it and no one way is correct.
An organisation which is essentially "office" based ( a bank for, instance)might atribute Light and Heat costs and a simple floor area basis. However, a manufacturing business would have to weight the split between those areas of the business which have the heaviest consumption.
Thanks, so i think absorbtion costing is just a method of indirect overhead recovery. Thanks for your little example too, might well be usefull! 
Not going to go into accountancy - i realise it's not for me! I just need to pass this module as part of my Business Economics course!
Rob.
Not going to go into accountancy - i realise it's not for me! I just need to pass this module as part of my Business Economics course!
Rob.
Eric Mc said:
I absolutely HATED cost accounting, which is why when I qualified I stayed in practise rather than go into industry.
However, to answer your question, the atribution of indirect overheads to different "cost centres" is tricky because there are multiple ways of doing it and no one way is correct.
An organisation which is essentially "office" based ( a bank for, instance)might atribute Light and Heat costs and a simple floor area basis. However, a manufacturing business would have to weight the split between those areas of the business which have the heaviest consumption.
We do something similar at work (someone has to)
The office rent and bills are evenly distributed on a per desk allocation. Each desk costs x amount to run.
Then if someone wants an extra job done/new client etc they work out how many man hours are needed for that task. For example if we currently made bottles of coke, and wanted to add pepsi to our portfolio, they would attribute 1 hour to marketing, 30 mins to tasting dept and 1 hour to the bottling area.
As the coke and pepsi would share some of the bottling capacity it becomes hard to allocate an exact cost to that centre Sort of makes sense in my head, but then I haven't done theoretical accounting modules, only real life scenario since Alberto the Frog choose his milkshake flavour..
>> Edited by mcflurry on Monday 30th May 20:18
cost centres = parts of a bussiness, e.g. in a manufacturing place you might have 3 - maintaince, fabrication and office.
direct = things like materials used by a cost centre, e.g. the materials and labour needed to create the product.
indirect = bills that are given to the bussiness as a whole and aren't easily split up into the various cost centres, you need a little bit approximation to split it up, i.e. use the amount floorspace of the various offices to split up the heating bill. e.g. if you are splitting a bill for £100 up into the 3 cost centres and are basing it on floor space (200, 50, 20) then you'd do 100/270*200, 100/270*50, 100/270*20 for each cost centre.
As for absorbtion, well that'll just be another word for how the indirect costs are split up.
Aint it great revising for a subject the night before an exam
. Not that I did that of course 
(morning in my case )
direct = things like materials used by a cost centre, e.g. the materials and labour needed to create the product.
indirect = bills that are given to the bussiness as a whole and aren't easily split up into the various cost centres, you need a little bit approximation to split it up, i.e. use the amount floorspace of the various offices to split up the heating bill. e.g. if you are splitting a bill for £100 up into the 3 cost centres and are basing it on floor space (200, 50, 20) then you'd do 100/270*200, 100/270*50, 100/270*20 for each cost centre.
As for absorbtion, well that'll just be another word for how the indirect costs are split up.
Aint it great revising for a subject the night before an exam
. Not that I did that of course (morning in my case )
Gassing Station | The Pie & Piston Archive | Top of Page | What's New | My Stuff