Full costing

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Full costing
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Direct and indirect costs
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Direct and indirect costs - Procedure
Net Profit
Sales Price
SA, 50 of Prod Cost
Full Cost
Production Cost
Prod OH, 125 of dL, 5
dL4
Mtrl OH, 50 of dM, 5
dM10
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Direct and indirect costs in practice
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The relationship between direct costs and
indirect costs
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The relationship between fixed costs, variable
costs and total costs
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The relationship between direct, indirect,
variable and fixed costs of a particular job
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A cost unit (Job A) passing through Autosparkle
Ltds process
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Allocation of indirect costs
Type of Cost
Objects to carry costs (Products, Services)
Direct Costs
Cost Centers
Allocated Costs OHs
Finance
Prod
Sales
RD
Indirect Costs
P1 P2
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Uses of full cost information
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Typical Full Cost Order Calculation
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Full Cost Calculations - Extremes
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Weknesses with traditional Full Costing
-Increased automation, less dL. -Higher level of
indirect costs -Global competition Smaller base
for cost allocation. Indirect costs higher than
Direct Costs. New approach Activity-Based-Cost
ing (ABC).
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Full Cost Calculations ABC influenced
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ABC Procedure, example
Activity Accounting Management Maintenance Adm
Development Marketing Machine Set up Buy
mtrl Assembly Mtrl
Cost Driver Nr of set ups,
time Machine hrs,
Cost Driver Volume Nr of set ups per
year Total set up cost Cost per set up
Activity Level Company/ Factory Production
process Product Batch Unit
å Of All
Product Cost
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ABC implementation in practice
High share of indirect costs
Rel low share of indirect costs. Complex and
expensive to implement