Costs distribution of production order hours – examples

Project peg distribution is used to split production order hours across relevant project pegs, taking into account the quantity of each peg.

Example 1

Peg distribution on the production order:

Peg Quantity
A 2
B 3
C 5

Operation rates:

Type of Operation Cost Rate ($) Cost Component
Labor 40 LB1
Overhead on Labor 4 LB2
Machine 50 MC1
Overhead on Machine 10 MC2

If, for this production order, 20 man hours and 10 machine hours are entered when these hours are processed, costs and hours are retrieved per peg and cost component:

Cost Component LB1 LB2 MC1 MC2
Peg        
A $160 (4h) $16 (4h) $100 (2h) $20 (2h)
B $240 (6h) $24 (6h) $150 (3h) $30 (3h)
C $400 (10h) $40 (10h) $250 (5h) $50 (5h)

Example 2

If different types of operation have the same cost component, costs and hours are aggregated.

Operation rates:

Type of Operation Cost Rate ($) Cost Component
Labor 40 LAB
Overhead on Labor 4 OVH
Machine 50 MACH
Overhead on Machine 10 OVH

If, for this production order, 20 man hours and 10 machine hours are entered when these hours are processed, costs and hours are retrieved per peg and cost component:

Cost Component LAB MACH OVH
Peg      
A $160 (4h) $100 (2h) $36 (4+2=6h)
B $240 (6h) $150 (3h) $54 (6+3=9h)
C $400 (10h) $250 (5h) $90 (10+5=15h)