Including machine hours and labor
Good for times when there is not a lot of difference year to year and when volume is high because cost allocation are based on volume related overhead rates.
Tying maintenance to machine hours and labor
Depreciation per machine hour
Allocating machine set-ups per machine hours
Allocates overhead not per product
No useful with wide range of products and volumes
No material usage variances were computed by QA
Employee benefits per machine hours
The cause of the costing system's failure was its inability to differentiate how machine hours were allocated by product unit. Thus, you are unable to understand the true production costs. Further, budgeted overhead rates were computed based on last year's figures so this system was not useful when volume was changes and declining year to year.
The symptoms and evidence of this include the huge range of variation on quotes for many parts, the higher volume units that had higher costs per unit (it is counterintuitive for a plant to be the most cost effective on low-volume and low-value parts), that the standard costs exceeded vendor prices by 35% on average although process wise they are competitive, and the large dispersion from competitor quotes that range from 50-60% and 200-300% on others.
Product A103 Cost Analysis
Material cost per 100 parts
Dir. Material Overhead
Per. Material Overhead
Direct Labor Hours/100
Direct Machine Rate
Period Machine Rate
Labor Support OH
Direct Labor OH
Machine Ops OH
Machine Hours OH
Machine Setup OH
Production Order OH
Materials Handling OH...
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