SCMA*2000 Lecture Notes - Lecture 31: Cost Driver, Deutsche Luft Hansa
Document Summary
All moh costs are grouped in one account and allocated based on a plant-wide rate. Assume lh is the best link between moh and product costs. Therefore, every time there is one hour spent on a product, ,000/10,000 or of. Initially, a plant-wide moh rate based on labour hours was effective because labour hours were a major portion of total cost. Nonetheless, this is the system most companies use for external reporting (gaap) Often a product with a long production run subsidizes a product with a short run: All moh are allocated based on one cost driver. This works if all products use the cost driver equally. Example, where the products do not use the cost driver equally: Assume the company only makes one unit each of the two products. Product a"s moh is x 10,000 = ,000. Therefore we need to price product a above ,000, and product b above ,000.
