Page 190 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes disadvantages

1. It does not give satisfactory result when the piece rate system is followed.
2. It ignores the distinction between skilled and unskilled workers.

3. It is not suitable when the labour rates fluctuate widely.

Advantages Percentage on Prime Cost
1. This method is simple to understand and easy to operate.

2. It considers both direct material and direct labour to determine the overhead. Because the
aggregate of both is quite significant and constitute major portion of the total cost.

disadvantages

1. In common with the previous two systems, this method does not distinguish between jobs
done by skilled and unskilled workers.
2. This method ignores the distinction between jobs done manually and jobs done by
machine.

direct Labour Hour Rate

Advantages

(i) It is simple to understand and easy to calculate.
(ii) It considers time factor.

(iii) It is suitable when manual labour is a dominant factor of production.

Disadvantages

(i) It ignores job done by skilled and unskilled workers.
(ii) It ignores the distinction between jobs done manually and those done by machines.

Rate Per Unit of Output

Advantages

(a) It is simple to understand and easy to calculate.
(b) It is suitable when the output is uniform.

Disadvantages

(a) It does not consider time factor.
(b) The distinction between skilled and unskilled worker is ignored.
(c) It also ignores the distinction between the manual labour and job done by machine.

Three different ways, the treatment of over or under-absorbed overhead may be done:
(a) To the next period’s account, the amount may be carried forward.

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