Now, we need to calculate rate of these type of overheads. They consume money in the form of salary, electricity, travel and other depreciation of their specific equipments. We can calculate rate of this overhead on the basis of no. With this, we can calculate set up of machine overhead rate per set up of the machine for production. To know machine set up rate, we need a cost driver. This activity will also consume certain expenses. So, number of purchase order is an example of cost driver. Its cost can be calculated one the basis of no. Examples of these cost drivers are given below: 1st : No. There will be many activities where we have to spent money.Īll these activities will become cost drivers. At that time, what will company do for calculating per unit cost? Just adding of raw material and labor cost and absorbing production overheads on direct labour hours or machine hours is not good way. Suppose, a company wants to produce several products. From activity pools, we can find cost drivers. We know that activity- based costing is based on the concept that products consume activities and activities consume resources.
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