管理会计课后习题Ronald Hilton 第七章

A CLOSER LOOK AT OVERHEAD COSTS

ANSWERS TO REVIEW QUESTIONS

7.1 When we refer to manufacturing overhead costs we are describing the indirect manufacturing costs of products.

These are the factory costs that are incurred in producing products but cannot be traced directly to them. They include all manufacturing costs other than direct material and direct labour, such as the costs of supervision, power, factory security and so on. From a product costing perspective, we can expand our definition of overheads to include all product-related costs other than direct costs as managers may require comprehensive estimates of product costs for making product-related decisions (see Chapter 4). However, as Australian accounting standard AASB 102 Inventories requires that inventory valuations in external reports of manufacturing businesses only include manufacturing costs, a distinction is drawn between indirect costs within the manufacturing area, called manufacturing overhead, and other indirect costs incurred along the value chain, upstream and downstream, of the manufacturing or production area.

Upstream costs and downstream costs, regardless of whether the entity is a manufacturer or a service provider include costs incurred before and after the production process, such as research and development, design and supply costs, marketing, distribution and customer service costs.

The indirect costs of responsibility centres are costs assigned to a unit in an organisation such as a department or division where a manager is held accountable for performance. Indirect costs cannot be traced directly to the centre so they need to be assigned instead.

7.2 Cost object: is something that is assigned a separate measure of cost because management need such cost

information; for example, responsibility centres, products, projects and so on. (The various production departments in a manufacturing firm also provide examples of cost objects. For example, the material handling cost pool may be allocated across the various production departments that use material handling services. In a hospital costs may be assigned to reception, a ward, a doctor, operating theatres or intensive care unit (ICU) and so on.)

Cost pool: a collection of costs that are to be assigned to cost objects. Costs are often pooled because they have the same cost driver. (An example of a cost pool is all costs related to material handling in a manufacturing firm.) Cost allocation base: is some factor or variable that is used to allocate costs in a cost pool to cost objects. (An example of a cost allocation base may be the weight of materials handled for each production department that uses material handling services. This base would be used to assign the costs in the material handling cost pool to the production departments.)

Cost driver: is a factor or activity that causes a cost to be incurred. (From the example above, the allocation base of weight of materials handled for each production department may be a cost driver depending on its causal relationship to the costs in the cost pool.)

The difference between cost allocation bases and cost drivers is that cost drivers are allocation bases but not all allocation bases are cost drivers. Ideally allocation bases should be cost drivers; that is, there should be a cause and effect relationship between the costs in the cost pool and the allocation base. In practice, some allocation bases do not have this relationship, or the relationship is imperfect. Under these circumstances the accuracy of the cost allocations can be questioned.

7.3 As shown in Exhibit 7.2 (Estimating the cost of a cost object), in estimating the cost of a cost object, direct costs

are traced directly to the cost object and indirect costs (those with no direct linkage to the cost object) are collected into cost pools and assigned to the cost object by means of allocation bases, preferably cost drivers.

Some possible examples of cost objects and their direct and indirect costs for the NGOs involved in the tsunami relief efforts (described in the ‘Real life - Measuring tsunami recovery costs: an overhead or not?’ on page 276) follow: