Page 66 - MAC4861_2 Costing Class Slides Part 1
P. 66
TEST 3 - COSTING
Absorption costing
Traditional volume based measures
• Overheads are allocated to units on an arbitrary basis
(using machine hours/labour hours/number of units
manufactured).
• Less accurate in the costing of products because cost
drivers are used where no cause and effect relationship
exists to assign costs to products.
E.g. using machine hours as the basis to allocate
overheads such as: product design, quality control,
production planning, ordering, machine set-ups,
despatching and customer services.
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