Sullivan, William G. Department of Industrial and Systems Engineering, Virginia Polytechnic Institute and State University, Blacksburg, Virginia.
Last reviewed:October 2019
- Cost models
- Key concepts
- Related Primary Literature
- Additional Reading
A specific system or procedure for determining accurate manufacturing costs in order to achieve profitability goals. Traditional accounting systems allocate overhead costs by using a volume-oriented base, such as direct labor hours or direct material dollars. The cost allocation bases of direct labor or production quantity were designed primarily for inventory valuation. As a consequence, traditional cost accounting methods are fully effective only when direct labor (or direct materials) is the dominant cause of cost.
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