Variations from Normal Costing: A Service Sector Example Homework Help

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Are you unable to cope with the syllabus of costing? Are you befuddled by variations from normal costing? Facing problems completing your assignment on it? Well, it is only natural that you face some problem with your accounts assignment.

Accounting is one of the dreaded subjects of all times among students and quite rightly so. It is difficulty of the subject that makes the student opt for variations from normal costing: a service sector example homework help in order to complete their assignments fully.

At myhomeworkhelp.com, we aim to provide the students with such help. We understand the complications of the subject and as a result, try and simplify it. This allows the students to grasp the concept easily and not struggle with their assignment for hours.

Understanding variations from normal costing

In certain service organization, variations from normal costing are needed. This is because the actual direct labor costs become difficult to trace to jobs as and when they are completed. Say for example, in an accounting firm; the audit becomes a job. The cost of each audit is recorded in the job cost as per the seven step approach.

All the costs associated with the job are recorded including direct, indirect and labor costs. You can understand the different costs included with variations from normal costing: a service sector example assignment help.

In service industries, considering the audit as an example, the actual direct labor costs related that may include the bonus can be known only at the end of the year. Also, the hours worked will vary depending on two factors:

  1. The number of working days in a month.
  2. The demand from the clients.

To assess the progress of an audit, some timely information is needed. For such situations, the organization will use budgeted rates for some direct and indirect costs which are calculated at the beginning of the financial year.

In contrast to this, in normal costing, direct costs use actual cost rates whereas the budgeted rates are used only for indirect costs.

Still confused about it? Then opt for variations from normal costing: a service sector example homework help to solve your confusion.

A service sector example

The variation from normal costing can be better understood with the help of an example with variations from normal costing: a service sector example assignment help.

Let’s say, for 2008 an accounting firm has a total direct labor cost of $144,000,000, total indirect costs of $129,600,000 and labor hours of 288,000.

Therefore, budgeted direct labor cost rate is $500 per direct labor hour.

Assuming there were only one indirect cost pool and total direct cost for the allocation base, we get:

Budgeted indirect cost rate= 90% of the direct labor cost.

Suppose, in April, a client of the firm uses 800 direct labor hours.

Therefore, direct labour costs for the client= 500×800= $400,000

Indirect costs = 90% of $400,000= $760,000

The example illustrates that all costing systems do not necessarily match. As a result, it gives importance to the learning of various costing systems at the same time.

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