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Contemporary Cost Structure
In contemporary manufacturing company the cost structure
will vary around averages on the order of:
| Direct Materials |
50% |
| Direct Labour |
10% |
| Manufacturing Overhead |
20% |
| Non-Manufacturing Costs |
20% |
| Total Cost |
100% |
In the production environment in which they were first
established the traditional cost accounting system tended to focus on
the control of direct labour, and use simple, approximate methods based
on direct labour measures to attach overhead costs to products. These
may have been justified in an environment in which direct labour was
the major cost element, control of the efficient use of direct labour
was the main management concern,
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overheads were insignificant, and clerical
and accounting information was compiled manually. However, in the current
environment a focus on direct labour seems less appropriate, and a routine
product cost reporting system that fails to provide information that is
of value in controlling the use of material and overhead costs, and only
satisfies the narrow rules of financial reporting, might be considered
to be hard to justify on cost - benefit grounds, particularly where it
may confuse or misguide decision-makers who mistakenly believe that the
resulting product costs are in any sense accurate reflections of the economic
resources used by each product. These concerns lie at the heart of contemporary
developments in cost system design and management accounting practices.
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