2. The table prepared in part (1) above allows two different perspectives
on the overhead cost of the order. The column totals that appear in the
last row of the table tell us the cost of the order in terms of the activi-
ties it required. The row totals that appear in the last column of the ta-
ble tell us how much the order cost in terms of the overhead accounts
in the underlying accounting system. Another way of saying this is that
the column totals tell us what the costs were incurred for . The row to-
tals tell us what the costs were incurred on . For example, you may
spend money on a chocolate bar in order to satisfy your craving for
chocolate. Both perspectives are important. To control costs, it is neces-
sary to know both what the costs were incurred for and what actual
costs would have to be adjusted (i.e., what the costs were incurred on).
The two different perspectives can be explicitly shown as follows:
What the overhead costs were incurred on :
Manufacturing:
Indirect labor ... R1,950
Factory depreciation ... 1,760
Factory utilities... 24
Factory administration ... 180
General selling & administrative:
Wages and salaries... 1,780
Depreciation ... 92
Taxes and insurance... 40
Selling expenses... 400
Total overhead cost ... R6,226
What the overhead costs were incurred for :
Order size ... R3,370
Customer orders ... 320
Product testing ... 356
Selling... 2,180
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