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all direct cost like direct material and labour are linked to the cost units as per actual cost incurred and not on the basis of budgeted figures decided.
But in case of fixed overhead we use budgeted figures to find out OAR and link it to the cost units.
i just want to confirm this is it right.
another question
But in case of variable production overhead how do we decide upon the rate.do we follow the same thing as in case of fixed production O/H. And if this variable production o/h does vary with units why can’t we refer them to as direct cost
The rate depends on the wording of the question.
Direct costs are only those costs that can actually be measured for each unit.
i am failing to really understand the differences between a cost centre,a cost unit and a cost object .can i please have a simplier explanation
A cost centre is an area where costs are incurred. For instance, one department of a factory will have lots of different costs which we add together to get the total costs in that department – it is a cost centre.
A cost unit is one unit of production that we want to calculate the cost of. If one cost centre has total costs of $100,000, and 5,000 units are worked on in that cost centre, the the cost per unit within that centre is $100,000/5,000 = $20.
(A cost object is effectively the same as a cost unit)Have you watched my free lectures on this? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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