Absorption Costing: allocation & apportionment of indirect labour
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I doing unit 6 through home study with Bpp and am working through the skills tests given in their Assessment Kit. I am asking my question here because I do not get any reply from Bpp when I e-mail them.
In both cases I have looked at there are 2 production costs centres and 2 service cost centres. My problem is how to apportion indirect labour costs. Each cost centre has a number of indirect employees so I would have thought that the total cost should be shared out among all 4 cost centres on the basis of number of indirect employees. (The total costs from the service cost centres, including this indirect labour cost, is later reapportioned to the production cost centres.) However, in the answers the indirect labour cost is apportioned only between the production cost centres, and the indirect employees in the service cost centres are ignored. Can any one explain why this should be and which is the correct way to do this?
Many thanks
K2 :?
In both cases I have looked at there are 2 production costs centres and 2 service cost centres. My problem is how to apportion indirect labour costs. Each cost centre has a number of indirect employees so I would have thought that the total cost should be shared out among all 4 cost centres on the basis of number of indirect employees. (The total costs from the service cost centres, including this indirect labour cost, is later reapportioned to the production cost centres.) However, in the answers the indirect labour cost is apportioned only between the production cost centres, and the indirect employees in the service cost centres are ignored. Can any one explain why this should be and which is the correct way to do this?
Many thanks
K2 :?
0
Comments
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Re:Absorption Costing: allocation & apportionment of direct labour
This sounds worrying.
Direct labour cost by definition is not overhead, so should not be included in any analysis.
Indirect should.
If you email me with a suggested time to ring you between 4.15 and 6.15 I will talk you through the question
sand.hood@chichester.ac.uk0