Student Solution

ACCT20001 Cost Management Department of Accounting

Tutorial 3 Solutions for Students

REQUIREMENT 1: Overhead Allocation Base- Complete Bhimani et al. (5th Ed.) Question 3.7, pg. 83 There is no single best answer. Some elements of a good response would include: 1. A very brief definition of an “allocation base.” Though not strictly called for in the question, it will help to clarify the answer. 2. Recognition of the significance of the qualifier “manufacturing overhead.” 3. Some specifics of how overhead allocation is performed in job costing. a. Overhead assigned at the level of the job. b. Accumulated on the job cost record. For example, a very thorough answer might read as follows: An allocation base is a direct quantitative measure of resources consumed by cost objects that is used to systematically assign (allocate) a given pool of indirect costs to the associated cost objects. Ideally, an allocation base will be a measure of, or a proxy for, a cost driver. That is, differences or changes in the measured quantity of the allocation base will correspond to differences in, or changes in, the proportion or amount of indirect costs that are incurred by the organization in order to gain the cost object. Manufacturing overhead specifically, are indirect costs incurred in the production of inventory by a manufacturing organization. In Australia, the definitions of costs that are included in manufacturing overhead for inventory valuation are standardized in AASB102 In job costing, the primary cost object is the job or job-order. Overhead is assigned (allocated) to the job by multiplying the quantity of the allocation base by the predetermined overhead allocation rate (in the case of so-called normal costing) or by the actual overhead allocation rate (in the case of actual costing). This allocated manufacturing overhead is assigned to the job by adding it to the job cost record, together with the job-specific direct labour and direct materials costs. Unit costs, if...