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
- Indirect labor costs
benefit costs for plant salary and labor
- Plant leases and utilities cost
- Plant maintenance costs
- Machinery maintenance and depreciation
When allocating to a part or a
job, the Cost Accountant needs to develop a reasonable allocation
method must take into consideration:
- If certain machines require more maintenance
- If more indirect labor is used on certain jobs.
- If area used is more expensive due to building
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.
of the rate to the job:
The allocation rate is usually calculated for each machine or
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
The outcome of the allocation should be to accurately reflect the cost
to produce the part.