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 plant 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.
  • Floor space needed.
  • 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.