Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Actual costing and normal costing differ in their use of actual or budgeted director indirect-cost rates. 3.6



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3.5
Actual costing and normal costing differ in their use of actual or budgeted director indirect-cost rates.
3.6
The two major goals of a job-costing system are (i) to assist in the cost management of departments and (ii) to determine the cost of individual jobs.
3.7
A cost allocation base is a factor that is the common denominator for systematically linking an indirect cost or a group of indirect costs to a cost object. The role of a manufacturing overhead allocation base is to systematically link manufacturing overhead costs to cost objects such as products, projects or customers.
3.8
Under- or overallocation of indirect (overhead) costs can arise because of (a) the numerator reason – the actual overhead costs differ from the budgeted overhead costs and (b) the denominator reason – the actual quantity used of the allocation base differs from that of the budgeted quantity.
3.9
Alternative ways to make end-of-period adjustments for under- or overallocated overhead are
a Proration based on the total amount of indirect costs allocated (before proration) in the closing balances of work in progress, finished goods and cost of goods sold.
b Proration based on total closing balances (before proration) in work in progress, finished goods and cost of goods sold.

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