ABSTRACT

Using the standard costing method, labor cost for one unit would be calculated using the total labor time, while overhead cost would consider the machine time at each workstation. Table 7.1 breaks down the costs for each product using the standard costing method. Two methods for overhead allocation are illustrated. The first is the simplest and most commonly found in practice. It uses labor hours as the basis for allocation. The second separates the time by machine and applies a separate overhead rate for each machine. This is often the case when there is a variety of machine sizes that consumes varying levels of resources. You can see that the two methods track very closely. As the total processing time increases for each product, the total cost increases as well.