Cost Accounting: Factors Influencing Cost Allocation Methods

Cost Accounting and Financial Reporting

• The level of accuracy required for cost accounting and financial reporting influences the chosen allocation method.
• Factors influencing cost allocation include accuracy and precision requirements, available data, and management preferences.

Rate Analysis Concept

• Determine the unit of measurement for each material (e.g., cement in bags, steel in kilograms, bricks in numbers, aggregates in cubic meters, and timber in cubic feet).
• Estimate quantities required for each material based on project specifications and drawings.
• Calculate the unit rate for each material by dividing the total cost by the total quantity.
• Multiply the unit rate by the estimated quantity to find the total cost for each material.

Illustrative Calculations

• Cement: Unit = Bag (50 kg), Estimated Quantity = 500 bags, Unit Rate = Rs.100 per bag, Total Cost = Rs.50,000
• Steel: Unit = Kilogram, Estimated Quantity = 10,000 kg, Unit Rate = Rs.20 per kg, Total Cost = Rs.200,000
• Bricks: Unit = Number, Estimated Quantity = 50,000 bricks, Unit Rate = Rs.3 per brick, Total Cost = Rs.150,000
• Aggregates: Unit = Cubic Meter, Estimated Quantity = 200 cubic meters, Unit Rate = Rs.400 per cubic meter, Total Cost = Rs.80,000
• Timber: Unit = Cubic Feet, Estimated Quantity = 5,000 cubic feet, Unit Rate = Rs.24 per cubic foot, Total Cost = Rs.120,000

Bar Bending Schedule (BBS)

• A BBS is a detailed reinforcement list that provides information about the type, size, quantity, and placement of reinforcement steel bars in a reinforced concrete structure.
• Developing a BBS involves:
  • Understanding structural drawings and design specifications
  • Identifying structural elements and marking reinforcement requirements
  • Calculating reinforcement quantities and checking against standard codes and specifications
  • Grouping and summarizing reinforcement data
  • Utilizing software tools and creating bending shapes and dimensions

This quiz covers the key factors that influence the choice of cost allocation methods in cost accounting, including accuracy and precision requirements, available data, and management preferences.