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Burden
Costs
Burden costs are the costs for the plant that are not included in
direct labor or material costs.
These costs are often the largest cost for a product.
Allocation of these costs to the product is often done
incorrectly.
These
costs include:
- Indirect labor costs
- Fringe
benefit costs for plan salary and labor
- Plant leases and utilities cost
- Plant maintenance costs
- Machinery maintenance and depreciation
Allocation:
When allocating to a part or a
job, the Cost Accountant needs to develop a reasonable allocation
method.
This
method must take into consideration:
- If certain machines require more maintenance
than others.
- If more indirect labor is used on certain jobs.
- If area used is more expensive due to building
type, etc.
This is sometimes a difficult job for the Cost Accountant.
However, allocation should not be done in haste.
These costs are very large and can make a part or service
profitable or unprofitable.
The end result needs to fairly allocate costs to jobs.
Allocation needs to be based on cost studies and interviews
with plant personnel.
Allocation
of the rate to the job:
The allocation rate is usually calculated for each machine or
operation.
The allocation rates can be based on the time each part spends at the
operation or in the machine. Some other method may be used
also.
The outcome of the allocation should be to accurately reflect the cost
to produce the part.
Other cost
elements:
Direct
Labor
Indirect
Labor
Material
Costs
Administrative
Costs
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