ACCT 361 Lecture Notes - Lecture 5: Watt, Profit Margin, Industrial Engineering
Document Summary
Cost per bottle (6 glasses) = . In this case, ned is paying too much and tyrion too little. Recall the factory overhead is applied to production in a rational systematic manner, using some type of averaging. There are a variety of methods to to accomplish this goal. In (cid:373)a(cid:374)(cid:455) of the e(cid:454)a(cid:373)ples (cid:449)e"(cid:448)e see(cid:374) i(cid:374) the past, i(cid:374)dire(cid:272)t (cid:272)osts (cid:449)ere allo(cid:272)ated usi(cid:374)g dire(cid:272)t hours or direct labour costs. Overcosting - a product consumes a low level of resources but is allocated high costs per unit. Undercosting - a product consumes a high level of resources but is all. If you were to use direct materials costs or direct labour hours to allocate the indirect costs, the mass produced laptop would proportionally incur more more indirect costs and the customized laptop would incur too little. This leads to incorrect pricing decisions and strategy. The result of spreading indirect costs evenly despite different causes or activities.
