First, remember that, with this case, we are addressing the “second stage” of the cost accounting effort. During this stage we “attach” a mission center’s costs to the products that pass through it. This is quite easy if all prod- ucts are the same, but more difficult if there is a mix of products. For example, in the Owen Hospital situation in the lecture, all dialyses were the same, so all we needed to do was divide the mission center’s total costs by the number of dialyses to get a cost per dialysis. However, in Destin Brass, there are three distinct products that pass through the mission center, such that the cost attachment effort is more complicated.
Second, it is quite easy to attach direct material and direct labor to any given product. These can be computed at standard and are unambiguously associated with each product. For example, the direct material cost of a valve is $16.00 and the direct labor cost of a valve is $4.00.
Third, there are two kinds of indirect costs in any given mission center that must be attached to the center’s products: (a) costs that are direct for the mission center but indirect with respect to any given product, it produces, and (b) costs that have been allocated into the mission center from a service center. In the Jefferson Multi-Media case, an example of the former would be the administrative salaries in the division; these salaries are a direct cost of the division, but indirect for any given product (such as a CD). An example of the latter would be the rent and de- preciation cost that was allocated into the division; this cost was indirect with respect to both the division and any given product it makes.
Fourth, all of the above indirect costs go into overhead cost pools. To attach them to products, we attempt to do two things: (a) make sure that each pool consists of a relatively homogeneous collection of costs and (b)