Input Measurement Bases

Input measurement bases are a part of cost accounting system. The input measurement bases determine the costs that flow into and through the inventory accounts. Under this system, accounting metrics are prepared to be estimates of the effort or costs expended in various firm activities.

The input measurement bases include three alternatives- pure historical costing, normal historical costing and standard costing. Pure historical costing is a costing in which only historical costs flow through the inventory accounts. It is sometimes referred to as only historical costs. Historical costs are a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. These are costs that have been recorded. They are sometimes also called as actual costs. It is associated with a particular product. In determining the cost of a product there are many cost allocations to be made. There are many alternative allocation methods, (e.g., straight line or accelerated depreciation) and hence the calculated cost of a unit of product or service simply represents an attempt to approximate the true cost.

The normal historical costing uses historical costs of direct material and labor. But the overhead is charged an applied to the inventory using a predetermined overhead rate per activity measure. The amount of factory overhead charged to the inventory is calculated by multiplying the predetermined rate by the actual quantity of the activity measure. The overhead variance is the difference between the applied overhead costs and the actual overhead costs

Under a standard cost all the manufacturing costs are applied, or charged to the inventory using standard or predetermined prices, and quantities. These costs are usually associated with a manufacturing company's costs of direct material, direct labor, and manufacturing overhead. Instead of assigning costs to these the manufacturers assign the expected or standard cost. The difference between actual costs and standard costs are known as variance.

Questions

• What are input measurement bases?
• What are the alternatives of input measurement bases?