assignment of costs order

What is Cost Allocation?

Types of costs, cost allocation mechanism, what is a cost driver, benefits of cost allocation, additional resources, cost allocation.

The process of identifying, accumulating, and assigning costs to costs objects

Cost allocation is the process of identifying, accumulating, and assigning costs to costs objects such as departments, products, programs, or a branch of a company. It involves identifying the cost objects in a company, identifying the costs incurred by the cost objects, and then assigning the costs to the cost objects based on specific criteria.

When costs are allocated in the right way, the business is able to trace the specific cost objects that are making profits or losses for the company. If costs are allocated to the wrong cost objects, the company may be assigning resources to cost objects that do not yield as much profits as expected.

There are several types of costs that an organization must define before allocating costs to their specific cost objects. These costs include:

1. Direct costs

Direct costs are costs that can be attributed to a specific product or service, and they do not need to be allocated to the specific cost object. It is because the organization knows what expenses go to the specific departments that generate profits and the costs incurred in producing specific products or services . For example, the salaries paid to factory workers assigned to a specific division is known and does not need to be allocated again to that division.

2. Indirect costs

Indirect costs are costs that are not directly related to a specific cost object like a function, product, or department. They are costs that are needed for the sake of the company’s operations and health. Some common examples of indirect costs include security costs, administration costs, etc. The costs are first identified, pooled, and then allocated to specific cost objects within the organization.

Indirect costs can be divided into fixed and variable costs. Fixed costs are costs that are fixed for a specific product or department. An example of a fixed cost is the remuneration of a project supervisor assigned to a specific division. The other category of indirect cost is variable costs, which vary with the level of output. Indirect costs increase or decrease with changes in the level of output.

3. Overhead costs

Overhead costs are indirect costs that are not part of manufacturing costs. They are not related to the labor or material costs that are incurred in the production of goods or services. They support the production or selling processes of the goods or services. Overhead costs are charged to the expense account, and they must be continually paid regardless of whether the company is selling goods or not.

Some common examples of overhead costs are rental expenses, utilities, insurance, postage and printing, administrative and legal expenses , and research and development costs.

The following are the main steps involved when allocating costs to cost objects:

1. Identify cost objects

The first step when allocating costs is to identify the cost objects for which the organization needs to separately estimate the associated cost. Identifying specific cost objects is important because they are the drivers of the business, and decisions are made with them in mind.

The cost object can be a brand , project, product line, division/department, or a branch of the company. The company should also determine the cost allocation base, which is the basis that it uses to allocate the costs to cost objects.

2. Accumulate costs into a cost pool

After identifying the cost objects, the next step is to accumulate the costs into a cost pool, pending allocation to the cost objects. When accumulating costs, you can create several categories where the costs will be pooled based on the cost allocation base used. Some examples of cost pools include electricity usage, water usage, square footage, insurance, rent expenses , fuel consumption, and motor vehicle maintenance.

A cost driver causes a change in the cost associated with an activity. Some examples of cost drivers include the number of machine-hours, the number of direct labor hours worked, the number of payments processed, the number of purchase orders, and the number of invoices sent to customers.

The following are some of the reasons why cost allocation is important to an organization:

1. Assists in the decision-making process

Cost allocation provides the management with important data about cost utilization that they can use in making decisions. It shows the cost objects that take up most of the costs and helps determine if the departments or products are profitable enough to justify the costs allocated. For unprofitable cost objects, the company’s management can cut the costs allocated and divert the money to other more profitable cost objects.

2. Helps evaluate and motivate staff

Cost allocation helps determine if specific departments are profitable or not. If the cost object is not profitable, the company can evaluate the performance of the staff members to determine if a decline in productivity is the cause of the non-profitability of the cost objects.

On the other hand, if the company recognizes and rewards a specific department for achieving the highest profitability in the company, the employees assigned to that department will be motivated to work hard and continue with their good performance.

Thank you for reading CFI’s guide to Cost Allocation. In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Break-Even Analysis
• Cost of Production
• Fixed Costs
• Fixed and Variable Costs
• Projecting Income Statement Line Items
• See all accounting resources
• Share this article

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What is Cost Assignment?

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Cost assignment.

Cost assignment is the process of associating costs with cost objects, such as products, services, departments, or projects. It encompasses the identification, measurement, and allocation of both direct and indirect costs to ensure a comprehensive understanding of the resources consumed by various cost objects within an organization. Cost assignment is a crucial aspect of cost accounting and management accounting, as it helps organizations make informed decisions about pricing, resource allocation, budgeting, and performance evaluation.

There are two main components of cost assignment:

• Direct cost assignment: Direct costs are those costs that can be specifically traced or identified with a particular cost object. Examples of direct costs include direct materials, such as raw materials used in manufacturing a product, and direct labor, such as the wages paid to workers directly involved in producing a product or providing a service. Direct cost assignment involves linking these costs directly to the relevant cost objects, typically through invoices, timesheets, or other documentation.
• Indirect cost assignment (Cost allocation): Indirect costs, also known as overhead or shared costs, are those costs that cannot be directly traced to a specific cost object or are not economically feasible to trace directly. Examples of indirect costs include rent, utilities, depreciation, insurance, and administrative expenses. Since indirect costs cannot be assigned directly to cost objects, organizations use various cost allocation methods to distribute these costs in a systematic and rational manner. Some common cost allocation methods include direct allocation, step-down allocation, reciprocal allocation, and activity-based costing (ABC).

In summary, cost assignment is the process of associating both direct and indirect costs with cost objects, such as products, services, departments, or projects. It plays a critical role in cost accounting and management accounting by providing organizations with the necessary information to make informed decisions about pricing, resource allocation, budgeting, and performance evaluation.

Example of Cost Assignment

Let’s consider an example of cost assignment at a bakery called “BreadHeaven” that produces two types of bread: white bread and whole wheat bread.

BreadHeaven incurs various direct and indirect costs to produce the bread. Here’s how the company would assign these costs to the two types of bread:

• Direct cost assignment:

Direct costs can be specifically traced to each type of bread. In this case, the direct costs include:

• Direct materials: BreadHeaven purchases flour, yeast, salt, and other ingredients required to make the bread. The cost of these ingredients can be directly traced to each type of bread.
• Direct labor: BreadHeaven employs bakers who are directly involved in making the bread. The wages paid to these bakers can be directly traced to each type of bread based on the time spent working on each bread type.

For example, if BreadHeaven spent $2,000 on direct materials and $1,500 on direct labor for white bread, and $3,000 on direct materials and $2,500 on direct labor for whole wheat bread, these costs would be directly assigned to each bread type.

• Indirect cost assignment (Cost allocation):

Indirect costs, such as rent, utilities, equipment maintenance, and administrative expenses, cannot be directly traced to each type of bread. BreadHeaven uses a cost allocation method to assign these costs to the two types of bread.

Suppose the total indirect costs for the month are $6,000. BreadHeaven decides to use the number of loaves produced as the allocation base , as it believes that indirect costs are driven by the production volume. During the month, the bakery produces 3,000 loaves of white bread and 2,000 loaves of whole wheat bread, totaling 5,000 loaves.

The allocation rate per loaf is:

Allocation Rate = Total Indirect Costs / Total Loaves Allocation Rate = $6,000 / 5,000 loaves = $1.20 per loaf

BreadHeaven allocates the indirect costs to each type of bread using the allocation rate and the number of loaves produced:

• White bread: 3,000 loaves × $1.20 per loaf = $3,600
• Whole wheat bread: 2,000 loaves × $1.20 per loaf = $2,400

After completing the cost assignment, BreadHeaven can determine the total costs for each type of bread:

• White bread: $2,000 (direct materials) + $1,500 (direct labor) + $3,600 (indirect costs) = $7,100
• Whole wheat bread: $3,000 (direct materials) + $2,500 (direct labor) + $2,400 (indirect costs) = $7,900

By assigning both direct and indirect costs to each type of bread, BreadHeaven gains a better understanding of the full cost of producing each bread type, which can inform pricing decisions, resource allocation, and performance evaluation.

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Cost Allocation – Meaning, Importance, Process and More

Cost Allocation or cost assignment is the process of identifying and assigning costs to the various cost objects. These cost objects could be those for which the company needs to find out the cost separately. A few examples of cost objects can be a product, customer, project, department, and so on.

The need for cost allocation arises because some costs are not directly attributable to the particular cost object. In other words, these costs are incurred for various objects, and then the sum is split and allocated to multiple cost objects. These costs are generally indirect. Since these costs are not directly traceable, an accountant uses their due diligence to allocate these costs in the best possible way. It results in an allocation that could be partially arbitrary, and thus, many refer cost allocation exercise as the spreading  of a cost.

Examples of Cost Allocation

• Cost Allocation – Importance

Cost Allocation Method

Define costs, identify cost objects, basis of allocation, accumulate costs into cost pool.

For example, a company’s CEO uses his car for personal and official purposes. So, if the CEO decides to allocate costs, then they will divide the cost (fuel, maintenance, etc.) for business and personal use based on usage.

The following examples will help us understand the cost allocation concept better:

• A company has a building in which there are various departments. One can allocate depreciation costs to the department on the basis square ft area of each department. This cost will then be further assigned to the products on which the department works.
• An accountant can attribute electricity that a production facility consumes to different departments. Then the accountant can assign the department’s electricity cost to the products that the department works on.
• An employee works on three products for a month. To attribute their salary to three products, an accountant can use the number of hours the employee gave to each product.

Cost Allocation – Importance

The following points reflect the importance of allocating costs:

• Allocating cost is essential for financial reporting, i.e., to correctly assign the cost among the cost objects.
• It allows the company to calculate the true profitability of the department or function. This profitability could serve as the basis for making further decisions for that department or service.
• If cost allocation is correct, it allows the business to identify and understand the costs at each stage and their impact on the profit or loss. On the other hand, if the allocation is incorrect, the company may end up making wrong or inconsistent decisions concerning the distribution of resources amongst various cost objects.
• The concept is also useful for finding the transfer prices when there is a transaction between subsidiaries.
• It helps a company make better economic decisions, such as whether or not to accept a new order.
• One can also use the concept to evaluate the performance of the staff.
• It helps in better explaining to the customers the costs that went into the pricing of a product or service.
• Allocation cost helps a company know where the money is going and how much. It will assist the company in using the resources effectively. Pool costs, if not allocated, may give an unbalanced view of the cost of various objects.

As such, there is no specific method to allocate costs. So, an accountant needs to use his or her due diligence to assign a cost to the cost object. Of course, they are considering the practice adopted in a similar industry. For instance, the accountant may decide to allocate expenses based on headcount, area, weightage, and so on.

Also Read: Cost Object – Meaning, Advantages, Types and More

Irrespective of the method an accountant uses, their objective should be to allocate the cost as fairly as possible. Or to allocate cost in a way that is in line with the nature of the cost object. Or to lower the arbitrariness in awarding costs.

Several efforts are underway to better cost allocation techniques. For instance, the overhead allocation for manufacturers, which was on plant-wide rates, is now based on departmental standards. Also, accountants use machine hours instead of direct labor hours for allocation.

Moreover, some accountants are also implementing activity-based costing to better the allocation. So, there can be several ways to allocate costs. But, whatever form the company selects, it is essential to document the reasons backing that method, and that need to be followed consistently for several periods.

A company can ensure documentation by developing allocation formulas or tables. Moreover, if a company wants, it can also pass supporting journal entries to transfer costs to the cost objects or do it via the chargeback module in the ERP system.

Also Read: Cost Hierarchy – Meaning, Levels and Example

Nowadays, cost allocation systems are available to assist in cost allocation. Such systems track the entity that produces the goods or services and the body that consumes those goods or services. The system also identifies the basis to distribute the cost.

The process to Allocate cost

As said above, there are no specific methods for allocating costs. Similarly, there is no particular process for it, as well. However, the process we are detailing is one of the most popular, and many companies use it for allocating costs. Following is the process:

Before allocating the cost, a company must define the various types of costs. Generally, there are three types of costs – direct, indirect, and overhead. Direct costs are those that one can easily attribute to a product or service, such as wages to factory workers or raw material for the specific product.

Indirect costs are ones that a company needs to incur for its operations, such as administration costs. Primarily, these are the costs that a company needs to allocate as it is difficult to attribute them directly to a product or service or any other cost object.

Another type of cost is an overhead cost , which is also an indirect cost. These costs are incurred for the production and selling of goods or services. Such costs do not vary based on production or sales. A company needs to pay them even if it is not producing or selling anything. Research and development costs, rent, etc., are good examples of such a cost.

The company or the accountant must know the cost objects for which they need to allocate the cost. It is crucial as we can’t assign costs to something on which we have no information. A cost object could be the product, customer, region, department, etc.

Along with the cost object , the company must also determine the basis on which it would allocate the cost. This basis could be the number of hours, area, headcount, and more. For example, if headcount is the basis of allocation for insurance costs and a company has 500 employees, then the department with 100 employees will account for 20% of the insurance cost. Experts recommend choosing a cost allocation base that is a crucial cost driver as well.

A cost driver is a variable whose increase or decrease leads to an increase or decrease in the cost as well. For instance, the number of purchase orders could be a cost driver for the cost of the purchasing department.

An accountant may create many categories to pool costs, which are to be allocated subsequently. It is the account head where the costs should be accumulated before assigning them to the cost objects. Cost pools can be insurance, fuel consumption, electricity, rent, depreciation, etc. The selection of the cost pool primarily depends on the use of the cost allocation base.

Continue reading – Costing Terms .

RELATED POSTS

• Cost Structure
• Types of Costs and their Classification
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• Types of Costing

Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

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• Cost Classifications
• Relevant Cost of Material
• Manufacturing Overhead Costs
• Conversion Costs
• Quality Costs
• Revenue Expenditure
• Product Cost vs Period Cost
• Direct Costs and Indirect Costs
• Prime Costs and Conversion Costs
• Relevant vs Irrelevant Costs
• Avoidable and Unavoidable Costs
• Cost Allocation
• Joint Products
• Accounting for Joint Costs
• Service Department Cost Allocation
• Repeated Distribution Method
• Simultaneous Equation Method
• Specific Order of Closing Method
• Direct Allocation Method

Cost allocation is the process by which the indirect costs are distributed among different cost objects such as a project, a department, a branch, a customer, etc. It involves identifying the cost object, identifying and accumulating the costs that are incurred and assigning them to the cost object on some reasonable basis.

Cost allocation is important for both pricing and planning and control decisions. If costs are not accurately calculated, a business might never know which products are making money and which ones are losing money. If cost are mis-allocated, a business may be charging wrong price to its customers and/or it might be wasting resources on products that are wrongly categorized as profitable.

Cost allocation is a sub-process of cost assignment , which is the overall process of finding total cost of a cost object. Cost assignment involves both cost tracing and cost allocation. Cost tracing encompasses finding direct costs of a cost object while the cost allocation is concerned with indirect cost charge.

Steps in cost allocation process

Typical cost allocation mechanism involves:

• Identifying the object to which the costs have to be assigned,
• Accumulating the costs in different pools,
• Identifying the most appropriate basis/method for allocating the cost.

Cost object

A cost object is an item for which a business need to separately estimate cost.

Examples of cost object include a branch, a product line, a service line, a customer, a department, a brand, a project, etc.

A cost pool is the account head in which costs are accumulated for further assignment to cost objects.

Examples of cost pools include factory rent, insurance, machine maintenance cost, factory fuel, etc. Selection of cost pool depends on the cost allocation base used. For example if a company uses just one allocation base say direct labor hours, it might use a broad cost pool such as fixed manufacturing overheads. However, if it uses more specific cost allocation bases, for example labor hours, machine hours, etc. it might define narrower cost pools.

Cost driver

A cost driver is any variable that ‘drives’ some cost. If increase or decrease in a variable causes an increase or decrease is a cost that variable is a cost driver for that cost.

Examples of cost driver include:

• Number of payments processed can be a good cost driver for salaries of Accounts Payable section of accounting department,
• Number of purchase orders can be a good cost driver for cost of purchasing department,
• Number of invoices sent can be a good cost driver for cost of billing department,
• Number of units shipped can be a good cost driver for cost of distribution department, etc.

While direct costs are easily traced to cost objects, indirect costs are allocated using some systematic approach.

Cost allocation base

Cost allocation base is the variable that is used for allocating/assigning costs in different cost pools to different cost objects. A good cost allocation base is something which is an appropriate cost driver for a particular cost pool.

T2F is a university café owned an operated by a student. While it has plans for expansion it currently offers two products: (a) tea & coffee and (b) shakes. It employs 2 people: Mr. A, who looks after tea & coffee and Mr. B who prepares and serves shakes & desserts.

Its costs for the first quarter are as follows:

Total tea and coffee sales and shakes sales were $50,000 & $60,000 respectively. Number of customers who ordered tea or coffee were 10,000 while those ordering shakes were 8,000.

The owner is interested in finding out which product performed better.

Salaries of Mr. A & B and direct materials consumed are direct costs which do not need any allocation. They are traced directly to the products. The rest of the costs are indirect costs and need some basis for allocation.

Cost objects in this situation are the products: hot beverages (i.e. tea & coffee) & shakes. Cost pools include rent, electricity, music, internet and wi-fi subscription and magazines.

Appropriate cost drivers for the indirect costs are as follows:

Since number of customers is a good cost driver for almost all the costs, the costs can be accumulated together to form one cost pool called manufacturing overheads. This would simply the cost allocation.

Total manufacturing overheads for the first quarter are $19,700. Total number of customers who ordered either product are 18,000. This gives us a cost allocation base of $1.1 per customer ($19,700/18,000).

A detailed cost assignment is as follows:

Manufacturing overheads allocated to Tea & Cofee = $1.1×10,000

Manufacturing overheads allocated to Shakes = $1.1×8,000

by Irfanullah Jan, ACCA and last modified on Jul 22, 2020

Related Topics

• Cost Behavior

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Module 6: Process Costing

Introduction to accumulating and assigning costs, what you will learn to do: assign costs to various stages of production.

Here is an overview of what you will learn in detail in this section:

You can view the transcript for “Process Costing” here (opens in new window) .

There are two methods for using process costs: Weighted Average and FIFO (First In, First Out). Each method uses equivalent units and cost per equivalent units but calculates them just a little differently.

When you are done with this section, you will be able to:

• Prepare a production cost report for the first stage of a multi-step process using the weighted-average method
• Prepare a production cost report for a second or subsequent stage of a multi-step process using the weighted-average method
• Prepare a production cost report using the FIFO method

Learning Activities

The learning activities for this section include the following:

• Reading: First-stage production report
• Self Check: First-stage production report
• Reading: Subsequent-stage production report
• Self Check: Subsequent-stage production report
• Reading: Production report using FIFO
• Self Check: Production report using FIFO
• Introduction to Accumulating and Assigning Costs. Authored by : Joseph Cooke. Provided by : Lumen Learning. License : CC BY: Attribution
• Process Costing. Authored by : Edspira. Located at : https://youtu.be/guZc84c5HNI. . License : All Rights Reserved . License Terms : Standard YouTube License

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COST ASSIGNMENT Definition

COST ASSIGNMENT involves assigning costs of an account to the accounts that are responsible or accountable for incurring the cost. For example, the cost of issuing purchase orders is allocated to the various objects procured. The cost assignment is done through assignment paths and cost drivers. The assignment path identifies the source account (the account whose cost is being assigned "Issue Purchase Orders" in the above example) and destination accounts (the accounts to which the costs are being allocated the various cost objects procured by issuing purchase orders in the above example). The cost driver identifies the measure or rationale on the basis of which the assignment needs to be done, that is, whether the costs of issuing purchase orders need to be assigned to various cost objects evenly, based on some defined percentage values, or based on some criterion, like the number of purchase orders of each cost object issued. Defining the cost drivers and assignment paths (i.e., source and destination accounts) enable proper assignment and accounting of the various costs incurred in the organization.

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FINANCE LEASE, typically, is a full-payout, non-cancelable agreement, in which the lessee is responsible for maintenance, taxes, and insurance.

NON-PERFORMING ASSET is an asset not effectual in the production of income. For example, in banking, commercial loans 90 days past due and consumer loans 180 days past due are classified as non-performing.

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4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing

In order to set an appropriate sales price for a product, companies need to know how much it costs to produce an item. Just as a company provides financial statement information to external stakeholders for decision-making, they must provide costing information to internal managerial decision makers. Virtually every tangible product has direct materials, direct labor, and overhead costs that can include indirect materials and indirect labor, along with other costs, such as utilities and depreciation on production equipment. To account for these and inform managers making decisions, the costs are tracked in a cost accounting system.

While the flow of costs is generally the same for all costing systems, the difference is in the details: Product costs have material, labor, and overhead costs, which may be assessed differently. In most production facilities, the raw materials are moved from the raw materials inventory into the work in process inventory . The work in process involves one or more production departments and is where labor and overhead convert the raw materials into finished goods. The movement of these costs through the work in process inventory is shown in Figure 4.5 .

At this stage, the completed products are transferred into the finished goods inventory account. When the product is sold, the costs move from the finished goods inventory into the cost of goods sold.

While many types of production processes could be demonstrated, let’s consider an example in which a contractor is building a home for a client. The accounting system will track direct materials, such as lumber, and direct labor, such as the wages paid to the carpenters constructing the home. Along with these direct materials and labor, the project will incur manufacturing overhead costs, such as indirect materials, indirect labor, and other miscellaneous overhead costs. Samples of these costs include indirect materials, such as nails, indirect labor, such as the supervisor’s salary, assuming that the supervisor is overseeing several projects at the same time, and miscellaneous overhead costs such as depreciation on the equipment used in the construction project.

As direct materials, direct labor, and overhead are introduced into the production process, they become part of the work in process inventory value. When the home is completed, the accumulated costs become part of the finished goods inventory value, and when the home is sold, the finished goods value of the home becomes the cost of goods sold. Figure 4.6 illustrates the flow of these costs through production.

The three general categories of costs included in manufacturing processes are direct materials , direct labor , and overhead . Note that there are a few exceptions, since some service industries do not have direct material costs, and some automated manufacturing companies do not have direct labor costs. For example, a tax accountant could use a job order costing system during tax season to trace costs. The one major difference between the home builder example and this one is that the tax accountant will not have direct material costs to track. The few assets used will typically be categorized as overhead.

A benefit of knowing the production costs for each job in a job order costing system is the ability to set appropriate sales prices based on all the production costs, including direct materials, direct labor, and overhead. The unique nature of the products manufactured in a job order costing system makes setting a price even more difficult. For each job, management typically wants to set the price higher than its production cost. Even if management is willing to price the product as a loss leader, they still need to know how much money will be lost on each product. To achieve this, management needs an accounting system that can accurately assign and document the costs for each product.

If you’re not familiar with the concept of a loss leader, a simple example might help clarify the concept. A loss leader is a product that is sold at a price that is often less than the cost of producing it in order to entice you to buy accessories that are necessary for its use. For example, you might pay $50 or $60 for a printer (for which the producer probably does not make any profit) in order to then sell you extremely expensive printer cartridges that only print a few pages before they have to be replaced. However, even pricing a product as a loss leader requires analysis of the three categories of costs: direct materials, direct labor, and overhead.

Direct Materials

Direct materials are those materials that can be directly traced to the manufacturing of the product. Some examples of direct materials for different industries are shown in Table 4.2 . In order to respond quickly to production needs, companies need raw materials inventory on hand. While production volume might change, management does not want to stop production to wait for raw materials to be delivered. Further, a company needs raw materials on hand for future jobs as well as for the current job. The materials are sent to the production department as it is needed for production of the products.

Each job begins when raw materials are put into the work in process inventory. When the materials are requested for production, a materials requisition slip is completed and shows the exact items and quantity requested, along with the associated cost. The completed form is signed by the requestor and approved by the manager responsible for the budget.

Returning to the example of Dinosaur Vinyl’s order for Macs & Cheese’s stadium sign, Figure 4.7 shows the materials requisition form for Job MAC001. This form indicates the quantity and specific items to be put into the work in process. It also transfers the cost of those items to the work in process inventory and decreases the raw materials inventory by the same amount. The raw materials inventory department maintains a copy to document the change in inventory levels, and the accounting department maintains a copy to properly assign the costs to the particular job.

Dinosaur Vinyl has a beginning inventory of $1,000 in raw materials: vinyl , and $300 in each of its ink inventories: raw materials: black ink , raw materials: red ink , and raw materials: gold ink . In order to have enough inventory on hand for all of its jobs, it purchases $10,000 in vinyl and $500 in black ink. The T-accounts in Figure 4.8 show the stated beginning debit balances. An additional $10,000 of vinyl and $500 of black ink were then purchased for anticipated use, providing the demonstrated final account balances. The red ink and gold ink balances did not change, since no additional quantities were purchased.

The beginning balances and purchases in each of these accounts are illustrated in Figure 4.8 .

Traditional billboards with the design printed on vinyl include direct materials of vinyl and printing ink, plus the framing materials, which consist of wood and grommets. The typical billboard sign is 14 feet high by 48 feet wide, and Dinosaur Vinyl incurs a vinyl cost of $300 per billboard. The price for the ink varies by color. For this job, Dinosaur Vinyl needs two units of black ink at a cost of $50 each, one unit of red ink and one unit of gold ink at a cost of $60 each, twelve grommets at a cost of $10 each, and forty units of wood at a cost of $1.50 per unit. The total cost of direct materials is $700, as shown in Figure 4.9 .

Some items are more difficult to measure per unit, such as adhesives and other materials not directly traceable to the final product. Their costs are assigned to the product as part of manufacturing overhead as indirect materials.

When Dinosaur Vinyl requests materials to complete Job MAC001, the materials are moved from raw materials inventory to work in process inventory . We will use the beginning inventory balances in the accounts that were provided earlier in the example. The requisition is recorded on the job cost sheet along with the cost of the materials transferred. The costs assigned to job MAC001 are $300 in vinyl, $100 in black ink, $60 in red ink, and $60 in gold ink. During the finishing stages, $120 in grommets and $60 in wood are requisitioned and put into work in process inventory. The costs are tracked from the materials requisition form to the work in process inventory and noted specifically as part of Job MAC001 on the preceding job order cost sheet. The movement of goods is illustrated in Figure 4.10 .

Each of the T-accounts traces the movement of the raw materials from inventory to work in process. The vinyl and ink were used first to print the billboard, and then the billboard went to the finishing department for the grommets and frame, which were moved to work in process after the vinyl and ink. The final T-account shows the total cost for the raw materials placed into work in process on April 2 (vinyl and ink) and on April 14 (grommets and wood). The journal entries to reflect the flow of costs from raw materials to work in process to finished goods are provided in the section describing how to Prepare Journal Entries for a Job Order Cost System .

Direct Labor

Direct labor is the total cost of wages, payroll taxes, payroll benefits, and similar expenses for the individuals who work directly on manufacturing a particular product. The direct labor costs for Dinosaur Vinyl to complete Job MAC001 occur in the production and finishing departments. In the production department, two individuals each work one hour at a rate of $15 per hour, including taxes and benefits. The finishing department’s direct labor involves two individuals working one hour each at a rate of $18 per hour. Figure 4.11 shows the direct labor costs for Job MAC001.

Job MAC001 is also manufactured with the work of individuals whose contributions cannot be directly traced to the product: These indirect labor costs are assigned to the product as part of manufacturing overhead.

A company can use various methods to trace employee wages to specific jobs. For example, employees may fill out time tickets that include job numbers and time per job, or workers may scan bar codes of specific jobs when they begin a job task. Figure 4.12 shows what time tickets might look like on Job MAC001. Please note that in the employee time tickets that are displayed, each employee worked on more than one job. However, we are only going to track the expenses for Job MAC001.

When the accounting department processes time tickets, the costs are assigned to the individual jobs, resulting in labor costs being recorded on the work in process inventory, as shown in Figure 4.13 .

Manufacturing Overhead

Recall that the costs of a manufactured item are direct materials, direct labor, and manufacturing overhead. Costs that support production but are not direct materials or direct labor are considered overhead. Manufacturing overhead has three components: indirect materials, indirect labor, and overhead.

Indirect Materials

Indirect material costs are derived from the goods not directly traced to the finished product, like the sign adhesive in the Dinosaur Vinyl example. Tracking the exact amount of adhesive used would be difficult, time consuming, and expensive, so it makes more sense to classify this cost as an indirect material.

Indirect materials are materials used in production but not traced to specific products because the net informational value from the time and effort to trace the cost to each individual product produced is impossible or inefficient. For example, a furniture factory classifies the cost of glue, stain, and nails as indirect materials. Nails are often used in furniture production; however, one chair may need 15 nails, whereas another may need 18 nails. At a cost of less than one cent per nail, it is not worth keeping track of each nail per product. It is much more practical to track how many pounds of nails were used for the period and allocate this cost (along with other costs) to the overhead costs of the finished products.

Indirect Labor

Indirect labor represents the labor costs of those employees associated with the manufacturing process, but whose contributions are not directly traceable to the final product. These would include the costs of the factory floor supervisor, the factory housekeeping staff, and factory maintenance workers. For Dinosaur Vinyl, for example, labor costs for the technician who maintains the printers would be indirect labor. It would be too time consuming to determine how much of the technician’s time is attributable to each sign being produced. It makes much more sense to classify that labor expense as indirect labor.

It is important to understand that the allocation of costs may vary from company to company. What may be a direct labor cost for one company may be an indirect labor cost for another company or even for another department within the same company. Deciding whether the expense is direct or indirect depends on its task. If the employee’s work can be directly tied to the product, it is direct labor. If it is tied to the factory but not to the product, it is indirect labor. If it is tied to the marketing department, it is a sales and administrative expense, and not included in the cost of the product. For example, salaries of factory employees assembling parts are direct labor, salaries of factory employees performing maintenance are indirect labor, and salaries of employees in the marketing department are sales and administration expenses.

The last category of manufacturing overhead is the overhead itself. These costs are necessary for production but not efficient to assign to individual product production. Examples of typical overhead costs are production facility electricity, warehouse rent, and depreciation of equipment.

But note that while production facility electricity costs are treated as overhead, the organization’s administrative facility electrical costs are not included as overhead costs. Instead, they are treated as period costs, as office rent or insurance would be.

When both administrative and production activities occur in a common building, the production and period costs would be allocated in some predetermined manner. For example, if a 10,000 square foot building were physically allocated at 4,000 square feet for administrative purposes and 6,000 square feet for production, a company might allocate its annual $30,000 property tax expense on a 40%/60% basis, or $12,000 as a period cost for the administrative offices and a production (overhead) cost of $18,000.

Link to Learning

Do you know of a restaurant that was doing really well until it moved into a larger space? Often this happens because the owners thought their profits could handle the costs of the increased space. Unfortunately, they were not really aware of the production costs. Keeping track of product costs is critical for pricing and cost control. Read advice from restaurant owner John Gutekanst about the importance of understanding food costs and his approach to account for these in his pizzeria.

Accounting for Manufacturing Overhead

In all costing systems, the expense recognition principle requires costs to be recorded in the period in which they are incurred. The costs are expensed when matched to the revenue with which they are associated; this is commonly referred to as having the expenses follow the revenues . This explains why raw material purchases are not assigned to the job until the materials are requested. When companies use an inventory account, the product costs are expensed when the inventory is sold. It is common to have an item produced in one year, such as 2017, and expensed as cost of goods sold in a later year, such as 2018. In addition to the previously mentioned revenue recognition treatment, this treatment is justified under GAAP’s matching principle . If the inventory has not been sold, the company has an inventory asset rather than an expense.

The expense recognition principle also applies to manufacturing overhead costs. The manufacturing overhead is an expense of production, even though the company is unable to trace the costs directly to each specific job. For example, the electricity needed to run production equipment typically is not easily traced to a particular product or job, yet it is still a cost of production. As a cost of production, the electricity—one type of manufacturing overhead—becomes a cost of the product and part of inventory costs until the product or job is sold. Fortunately, the accounting system keeps track of the manufacturing overhead, which is then applied to each individual job in the overhead allocation process.

Ethical Considerations

Ethical job order costing.

Job order costing requires the assignment of direct materials, direct labor, and overhead to each production unit. The primary focus on costs allows some leeway in recording amounts because the accountant assigns the costs. When jobs are billed on a cost-plus-fee basis, management may be tempted to overcharge the cost of the job. Cost-based contracts may include a guaranteed maximum, time and materials, or cost reimbursable contract. An example is the design and delivery of a corporate training program. The training company may charge for the hours worked by instructors in preparation and delivery of the course, plus a fee for the course materials.

One major issue in all of these contracts is adding too much overhead cost and fraudulent invoicing for unused materials or unperformed work by subcontractors. Management might be tempted to direct the accountant to avoid the appearance of going over the original estimate by manipulating job order costing. It is the accountant’s job to ensure that the amounts recorded in the accounting system fairly represent the economic activity of the company, and the fair and proper allocation of costs.

Managers use the information in the manufacturing overhead account to estimate the overhead for the next fiscal period. This estimated overhead needs to be as close to the actual value as possible, so that the allocation of costs to individual products can be accurate and the sales price can be properly determined.

Properly allocating overhead to the individual jobs depends on finding a cost driver that provides a fair basis for the allocation. A cost driver is a production factor that causes a company to incur costs. An example would be a bakery that produces a line of apple pies that it markets to local restaurants. To make the pies requires that the bakery incur labor costs, so it is safe to say that pie production is a cost driver. It should also be safe to assume that the more pies made, the greater the number of labor hours experienced (also assuming that direct labor has not been replaced with a greater amount of automation). We assume, in this case, that one of the marketing advantages that the bakery advertises is 100% handmade pastries.

In traditional costing systems, the most common activities used as cost drivers are direct labor in dollars, direct labor in hours, or machine hours. Often in the production process, there is a correlation between an increase in the amount of direct labor used and an increase in the amount of manufacturing overhead incurred. If the company can demonstrate such a relationship, they then often allocate overhead based on a formula that reflects this relationship, such as the upcoming equation. In the case of the earlier bakery, the company could determine an overhead allocation amount based on each hour of direct labor or, in other cases, based on the ratio of anticipated total direct labor costs to total manufacturing overhead costs.

For example, assume that the company estimates total manufacturing overhead for the year to be $400,000 and the direct labor costs for the year to be $200,000. This relationship would lead to $2.00 of applied overhead for each $1.00 of direct labor incurred. The manufacturing overhead cost can be calculated and applied to each specific job, based on the direct labor costs. The formula that represents the overhead allocation relationship is shown, and it is the formula for overhead allocation:

For example, Dinosaur Vinyl determined that the direct labor cost is the appropriate driver to use when establishing an overhead rate. The estimated annual overhead cost for Dinosaur Vinyl is $250,000. The total direct labor cost is estimated to be $100,000, so the allocation rate is computed as shown:

Since the direct labor expense for MAC001 is $66, the overhead allocated is $66 times the overhead application rate of $2.50 per direct labor dollar, or $165, as shown:

Figure 4.14 shows the journal entry to record the overhead allocation.

Think It Through

Franchise or unique venture.

You are deciding whether to purchase a pizza franchise or open your own restaurant specializing in pizza. List the expenses necessary to sell pizza and identify them as a fixed cost or variable cost; as a manufacturing cost or sales and administrative costs; and as a direct materials, direct labor, or overhead. For each overhead item, state whether it is an indirect material expense, indirect labor expense, or other. For each cost, identify its origination in a job order costing environment.

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Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters

• Authors: Mitchell Franklin, Patty Graybeal, Dixon Cooper
• Publisher/website: OpenStax
• Book title: Principles of Accounting, Volume 2: Managerial Accounting
• Publication date: Feb 14, 2019
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
• Section URL: https://openstax.org/books/principles-managerial-accounting/pages/4-2-describe-and-identify-the-three-major-components-of-product-costs-under-job-order-costing

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• Practical Law

Costs order

Practical law uk glossary 9-200-3144  (approx. 3 pages).

• Employment Tribunals
• Employment Appeal Tribunal
• Costs - Litigation

Cost Center: Assigned Orders and Projects - Plan/Actual - Situation

This workbook contains four queries that provide regular reports for the cost center manager. The data is displayed for the current period and the current year, cumulated up to the current period.

They provide the following for example:

A complete overview of the costs incurred on assigned account assignment objects (for example, in the Responsible cost center field in the order master).

Information on the primary and secondary costs (actual and planned) that are incurred on a cost center

Information on the actual and planned costs that are incurred on assigned internal orders (in the Responsible cost center field in the order master)

Information on costs that are incurred on the assigned WBS elements (in the Responsible cost center in the WBS element)

For background information on the concept of workbooks, see Workbooks in Controlling .

When you refresh a workbook in the BexAnalyzer, make sure the cursor is not positioned on a query. If the cursor is positioned on a query, only that query is refreshed.

This workbook contains the following queries:

Creating Orders

After completing this lesson, you will be able to create an Order .

In the second step, a maintenance order is planned based on a notification. Typically, planning activities comprise the creation of order operations including planned work efforts and the reservation of relevant material or spare parts.

The instruments available for processing maintenance tasks are as follows:

Orders are used to plan maintenance tasks, and plan or track the costs incurred. Planning functions do not have to be executed; orders can also be created as immediate orders without any planning.

Notifications are used to convey maintenance requirements, the documentation for technical findings, and the documentation for activities performed. Orders and notifications can be used independent of one another. However, they are usually combined to utilize the advantages of both instruments.

A maintenance order can also be created directly, without a notification. The findings for the malfunction description can be entered later, when the order is concluded, by a subsequent report.

The disadvantage is that data regarding the origin of the malfunction can be lost.

Order Structure

The main elements of a maintenance order are as follows:

The order header data contains information that serves to identify and manage the maintenance order. It is valid for the whole maintenance order. Header data includes the number, description, type of order, scheduled dates for order execution, priority of tasks, creator, last person who changed the order, and so on.

The object list contains the objects to be processed (functional locations, equipment, assemblies, and serial numbers) and it is implemented if the same activity must be performed at multiple objects of the same type.

The order operation describes the tasks that must be performed, who performs those tasks, and what guidelines they follow.

The material list (component list) records the spare parts that are required and used when the maintenance order is executed.

Production resources and tools (for example, tools, protective clothing, trucks, and so on) are required to execute the maintenance order, but are not used up because they can be used again.

The data in the settlement rule provides information on which account assignment object the costs are to be settled. The account assignment object is proposed from the master record for the reference object and can be changed when the first settlement rule is maintained for the order.

The costs view displays how much the estimated, planned, and actual costs are in the value categories for this order. There is a technical view and a controlling view available.

Maintenance Order Creation Options

You can either create short orders which only contain a single operation (fast entry). In SAP GUI this automatically created first operation is displayed at the bottom of the header tab.

You can also create orders with a more complex planning which contain numerous operations. In this case use the operations list within the order.

A maintenance order is created directly (for example, a breakdown order).

The maintenance notification is entered by a requester. The maintenance order is created referring to the maintenance notification by the planner.

In a maintenance order, multiple technical objects can be listed on the Object List tab, and individual notifications can be assigned to each object.

A maintenance order is created without reference to a maintenance notification. An activity report for this order is created later as a technical confirmation.

A maintenance order is automatically generated from a maintenance item by the maintenance plan.

Operations List and Object List

Operations list.

When you prepare work using operations, you can plan at three different detail levels, depending on the type of maintenance order and the scope of the work planned.

An operation can consist of various sub-operations, that is, a task can be split up in various sub-tasks, which then can be assigned to different Work Centers. Sub-operations can be defined for the same operation number (for example, operation 0010 0010, operation 0010 0020, operation 0010 0030).

Sub-operations have a limited functionality in comparison to (main) operations: material assignment is not possible, booking of actual costs is not possible (OLC orders).

Execution Stages

You can classify the order operations according to their significance in the course of the maintenance or repair work in the operation table of the Operation Data area and in the operation details. In the Stage table column, you can classify operations and sub-operations as preliminary work steps (PRE), main work (MAIN), and subsequent work steps (POST), thus grouping operations and sub-operations according to the assigned execution stage.

You have to active Enterprise Business Function LOG_EAM_IME_1 to make this feature available.

Object List

The object list is an integral part of the maintenance order. It is used to collect and group the following data:

• Notifications for the same technical objects.
• Notifications for different technical objects.
• Technical objects without notifications.

As a result of collecting this data, the object list always consists of several objects to be processed.

If notifications are assigned to the order using the object list, the first notification in the object list appears in the notification field in the order header. This is indicated as the header notification.

Both the header notification, and the other notifications in the object list, can be separated from the order again. The object list does not control the order. Adjustment of work to be performed, update of history, or cost distribution are not performed for the objects in the object list.

Notifications can be assigned to either an existing order or a newly-created order. If the notification has a task list assigned, the operations of the task list can be copied to the operation list of the order. As a prerequisite, the integration of a notification with an order must be set in the IMG.

The following fields are available for the operations list:

• Functional Location
• Notification
• Plan Date for Notification (in case the notification was generated from a maintenance plan)

The notifications assigned to an order are copied to the object list of the order.

How to Create a Maintenance Order

Integration of notification and order.

In the settings of an order type, you can define how the object list entries of an order, influence the operation list of an order.

For example, the creation of a maintenance order combining various notifications, which are each linked to a different task list.

The following options are available:

• Assignment of order operations to object list entries is set to inactive (default).
• Assignment of order operations only for notifications, created via maintenance plans.
• Assignment to order operations for all notifications.

For example, also for equipment, functional locations.

If a notification is deleted from the object list of an order, all corresponding operations that came with the task list of the notification are deleted from the operation list of the order. Also, if the operations linked to a notification are deleted from the operation list of the order, the corresponding notification is also deleted from the object list.

When an order is created based on a single notification, this notification becomes the header notification. The assignment of the header notification to an order can be deleted. If several notifications are assigned to an already existing order, you can define one of these notifications as the header notification (provided the order doesn't have one yet). This assignment can also be deleted.

When an order is created based on a notification, the long text of the notification can automatically be copied as the long text of the order (note - this can only be done during the creation of the order). This must be activated in the IMG for each notification type.

In order to support planning processes, documents of SAP document management can be assigned, displayed and created, both at the order level and the operation level. Documents in SAP document management is master data created to maintain and manage all kinds/types of real documents such as technical drawings, text documents, photos.

The document info record comprises various features (e.g. different document types, versioning) and offers security for the originals, which is stored in a specific repository of SAP Netweaver.

Controlling

Cost calculation is an integrated function of maintenance orders and is carried out automatically based on the planned and consumed resources.

In this context a distinction is made between orders which accumulate costs on the order header and orders which accumulate costs on the order operation.

Although most of the maintenance order types such as PM01 and PM02 use postings at header level, there is the requirement to calculate and post costs at operation level.

An order must have either a header-based or an operation-based costing. You cannot have mixed-mode costing.

Costs for maintenance orders are calculated by default at header level. The operation account assignment (OAA) solution allows you to calculate costs of maintenance orders at operation level. Header totals are summed dynamically, as required. No costs are stored on the OAA order object database.

Costs for maintenance orders are settled by default at header level. The operation account assignment (OAA) solution allows you to post costs of maintenance orders at operation level. An order must have either a header-based or an operation-based costing. You cannot have mixed-mode costing.

Header-costed orders usually create their settlement rule automatically based on the account data of the reference object in the order header.

Orders with operation account assignment use the same logic, i.e. based on the reference object in the order header, but create a settlement rule for each operation.

If a technical object is assigned to the operation, the settlement rule for the operation will be created based on the data of this object.

Costs in the maintenance order can be displayed in two different view:

• By Value Category (Cost Category)
• By Cost Element (Detailed Cost Analysis)

Integration

The maintenance order is integrated with Controlling (CO), Accounting (FI) and Materials Management (MM).

When planning work for a work center within in an order operation the correct cost element (CO) is automatically found. When planning a material with a certain quantity a direct integration with Materials Requirements Planning (MRP) is available. In addition, the correct account (FI) and the corresponding cost element (CO) is automatically determined.

SAP GUI Transactions

As an alternative to working in SAP Fiori Launchpad you can use the following transactions.

For the On Premise edition they are available via SAP GUI for Windows.

In addition, every transaction also has a SAP GUI for HTML version.

Transactions for Maintenance Orders:

• IW31, IW32, IW33 - Create, Change, Display Order
• IW38, IW39 - List Editing Change, Display

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• Personal Finance

Sam's Club Set to Roll Out Order Minimums on Aug. 19

Published on Aug. 15, 2024

By: Natasha Etzel

• Club members who spend $50 or more can place fee-free curbside pickup orders at Sam's Club.
• Plus members will need to spend $50 or more to qualify for free delivery and free shipping perks.

If you're a current Sam's Club member or have been considering joining, you'll want to be aware of some upcoming changes the retailer is making. Sam's Club is establishing order minimums to qualify for free curbside pickup, free delivery, and free shipping. These changes will take effect on Aug. 19, 2024.

Here's what you need to know before you place your next order.

Free curbside pickup for Club members who spend $50 or more

Starting Aug. 19, 2024, Club members can pick up curbside orders without paying a fee when meeting a minimum order threshold of $50. A $4 fee will apply to each curbside pickup order if the minimum order threshold isn't met. This is good news for Club members because they can save money on fees by placing a bigger order.

Curbside pickup remains a free service for Plus members, regardless of the order amount.

Free shipping minimums now apply

Right now, Plus members qualify for free shipping perks for eligible items purchased through the Sam's Club website or mobile app. However, starting next week, only some orders will be eligible for free shipping.

Beginning Aug. 19, 2024, free shipping will be available on orders of $50 or more. If the $50 threshold is not met, an $8 fee will apply. You can avoid this fee by placing a bigger order the next time you shop online.

Delivery is now free for Plus members on orders of at least $50

Sam's Club offers delivery in some locations, including same-day delivery in eligible areas. Club and Plus members can have their orders delivered for a fee. Currently, Club members pay $12 per order for delivery, while Plus members pay $8 per order.

But starting on Aug. 19, 2024, Plus members can avoid the delivery fee by meeting a minimum order threshold of $50. Otherwise, they will still be charged the $8 fee per order. Club members will continue to be charged a fee of $12 per order when getting items delivered to their home.

What's the difference between membership types?

If you're considering joining Sam's Club, you may wonder how the membership options differ. A Club membership costs $50 a year. With this basic membership, you can shop in-club or online and access the retailer's best deals. It's an affordable way to get major discounts.

Alternatively, you could pay more for a Plus membership, which costs $110 annually. You'll get the same perks offered with a Club membership, plus additional benefits like extra pharmacy and optical discounts and access to early shopping hours. As a Plus member, you can also earn 2% rewards on eligible Sam's Club purchases for a maximum of $500 in rewards each year.

Is a Sam's Club membership still worth the cost?

While these upcoming changes may impact how you order from the retailer, your warehouse club benefits remain mostly unchanged. For some members, the changes are positive.

If you're a Club member, you now get an additional perk with your membership -- access to free curbside pickup when placing eligible orders of $50 or more. If you use curbside pickup service often, you can trim your credit card bill by avoiding pick up fees.

Are you unsure whether your Sam's Club membership is still worthwhile? As long as you're getting value from the perks provided, it's worth it. For many shoppers, continuing to pay for an annual Sam's Club membership is likely a good money move.

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Important Note : At McDonald's, we take great care to serve quality, great-tasting menu items to our customers each and every time they visit our restaurants. We understand that each of our customers has individual needs and considerations when choosing a place to eat or drink outside their home, especially those customers with food allergies. As part of our commitment to you, we provide the most current ingredient information available from our food suppliers for the nine most common allergens as identified by the U.S. Food and Drug Administration (eggs, dairy, wheat, soy, peanuts, tree nuts, fish, shellfish and sesame), so that our guests with food allergies can make informed food selections. However, we also want you to know that despite taking precautions, normal kitchen operations may involve some shared cooking and preparation areas, equipment and utensils, and the possibility exists for your food items to come in contact with other food products, including allergens. We encourage our customers with food allergies or special dietary needs to visit www.mcdonalds.com for ingredient information, and to consult their doctor for questions regarding their diet. Due to the individualized nature of food allergies and food sensitivities, customers' physicians may be best positioned to make recommendations for customers with food allergies and special dietary needs. If you have questions about our food, please reach out to us directly at mcdonalds.com/contact or 1-800-244-6227.

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U.S. Unveils Price Limits for 10 Costly or Common Medications

The Biden administration said it would have saved $6 billion had the new prices been in effect last year.

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By Noah Weiland and Rebecca Robbins

Noah Weiland covers federal health policy, and Rebecca Robbins covers the pharmaceutical industry.

The Biden administration on Thursday unveiled the results of landmark drug price negotiations between Medicare and pharmaceutical companies, allowing President Biden and Vice President Kamala Harris to cast themselves as confronting the drug industry on behalf of older Americans at a critical moment in the presidential campaign.

The negotiated prices, which take effect in 2026, are expected to save billions of dollars for Medicare, which is funded by taxpayers. But they will lead to direct out-of-pocket savings for only a subset of the millions of older Americans who take the drugs subject to negotiations.

Other provisions of the law that created the drug negotiation program, such as capping patients’ expenses for insulin and their yearly out-of-pocket drug costs, will do more to save older Americans money at the pharmacy counter.

The 10 drugs subject to negotiations include widely used blood thinners and arthritis medications. Had the new prices been in effect last year, administration officials said, Medicare would have saved $6 billion, which would have reduced its spending on those drugs by 22 percent.

“This is a fight all of us have been fighting for a long time: taking on Big Pharma,” Mr. Biden said at an event in Maryland celebrating the announcement, where he and Ms. Harris had their first joint public appearance since she took over the Democratic presidential ticket.

The negotiations, a longtime aspiration of Democrats, are the first that the federal government has directly conducted with drugmakers on behalf of Medicare beneficiaries. Mr. Biden on Thursday recalled working on legislation as a senator in the 1970s that would have allowed Medicare to negotiate prices directly.

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What dish should you order before the Iowa State Fair ends? A gigantic Amish doughnut.

Whether riding the DART shuttle to the Iowa State Fair, chatting with food vendors on the Fairgrounds, or eavesdropping on conversations, it seems that fairgoers have one dish they all recommend — Peachey’s doughnuts.

Don’t let the name fool you. There’s nary a peach in sight anywhere aside from the name. Peachey’s Baking Co. serves these gigantic glazed doughnuts, these yeasty doughnuts bigger than your palm, fried on the spot, dipped in glaze and hung on pegs to allow the sugary coating to drip off and cool while awaiting the next customer to order.

Peachey’s founders, brothers Nate and Sam Peachey, used to call the Sarasota, Florida-based company Amish Baking Co., since they grew up in the Amish community. The recipe they used since opening in 1985 is an Amish recipe as well.The Peachey brothers serve their confections at state fairs across the country — Minnesota, North Carolina, Florida, New York, and Iowa. From November to April, the food truck serves doughnuts and pretzels in Sarasota and hopes to open a brick-and-mortar location there in the fall.

One doughnut goes for $5, three for $12, and a half dozen costs $24.

A heavy aroma of sweetness wafts out of the box when you open it. Half a doughnut feels like an appropriate serving, if there is such a thing with doughnuts of this size.

Find it on Rock Island Avenue south of the Triangle.

Susan Stapleton is the entertainment editor and dining reporter at The Des Moines Register. Follow her on  Facebook ,  X , or  Instagram , or drop her a line at  [email protected] .

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Statement from Vice President Kamala   Harris on the Inflation Reduction Act   Anniversary

Since day one of our Administration, President Joe Biden and I have made it a priority to strengthen the middle class by lowering costs, creating jobs, and advancing opportunity. That is why we fought to enact our Inflation Reduction Act, historic legislation that I was proud to cast the tie-breaking vote on in the Senate. In the two years since President Biden signed it into law, this landmark bill has already delivered for American families.   This transformational legislation is reducing the cost of health care for millions of people in communities across our nation – from capping the price of insulin at $35 a month for seniors to capping out-of-pocket drug costs at $2,000 a year for Americans on Medicare, which is expected to save nearly 19 million seniors an average of $400 per year. Additionally, Medicare is now able to negotiate lower prescription prices for millions of Americans while saving taxpayers billions by paying rates 40% to 80% lower for expensive medications used to treat conditions such as blood clots, heart disease, and cancer.   Our Inflation Reduction Act is also the single largest climate investment in American history. While taking on the climate crisis and lowering utility bills for families, it is helping us to rebuild American manufacturing and drive American innovation – creating good-paying union jobs, furthering economic opportunity, and contributing to the nearly $900 billion of private-sector investment since President Biden and I took office.   As we mark this two-year anniversary, President Biden and I recommit to doing everything in our power to ensure that families throughout our country have the freedom to thrive.

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• America’s immigration policies are failing

A new surge of migration is straining a broken system and might cost Joe Biden the election

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S O YOU WANT to come to America. Venezuela, your home country, is suffering under Nicolás Maduro’s violent kleptocracy. What to do? Good luck getting a green card: employers won’t bother sponsoring a low-skilled worker like you, and you have no immediate family in America to vouch for you. Your WhatsApp is filled with news of friends who have crossed America’s southern border. You decide to follow them and, after a hellish trip, make it to the Rio Grande. You could try to slip across undetected—about 600,000 “gotaways” managed it last year. Or you can tell the border agents who intercept you that you want asylum. Odds are that they will release you with a court date scheduled in several months’ time, kickstarting a process that may take years. Welcome to America.

In November 2023 nearly 250,000 migrants crossed the southern border. The surge—and the perception that America’s borders are open—is a giant political liability for President Joe Biden. Just 27% of Americans tell pollsters that they approve of his handling of the border. More than twice as many trust Donald Trump on the issue. The fact that surging migration over the southern border could cost Mr Biden the election in November has made the problem trickier to solve. Wrangling over a deal to fund Ukraine in exchange for tighter border security and asylum limits has dragged on for months. Although Senate leaders say an agreement is close, some Republicans—reportedly including Mr Trump—seem to want the border chaos to fester, to better beat Mr Biden over the head with it during the election campaign.

Several factors explain the surge: violence and instability around the globe; plentiful job openings in America; the accurate perception that Mr Biden is more welcoming than his predecessor; and cumbersome, limited pathways to come legally . An overwhelmed border apparatus also invites more crossings, notes David Bier of the Cato Institute, a think-tank. When people hear that they are unlikely to be detained and deported, more try their luck.

Decades of neglect and partisan rancour have crippled America’s immigration system and created a situation where immigrants view asylum-seeking as the surest way to get into the country, rather than a long-shot attempt. Congress last made meaningful reform to immigration law in 1990. Comprehensive, bipartisan reform has seemed close several times since, only to fall apart in the end. In 2006, 2007 and 2013 bipartisan Senate bills included a path to citizenship for undocumented immigrants, more visas for workers and stricter enforcement at the border. In recent years Democrats have largely been animated by the desire to protect daca recipients, immigrants who were brought to America as children, from deportation.

Mr Trump’s candidacy upended the politics of immigration. When he launched his campaign in 2015, the number of migrants apprehended nationwide was at its lowest level since 1971. That fact did not, of course, stop Mr Trump from declaring that migrants threatened the American way of life. (“They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.”) In 2019 irregular entries at the southern border jumped. Mr Trump saw detention as a means of deterrence and made some migrants with pending asylum claims wait in Mexico. At one time during his presidency nearly 57,000 people were detained. The surge was so great that even Mr Trump released a quarter of migrants into the country immediately with a notice to appear ( NTA ) in immigration court.

Borderline, personalities, disorder

Mr Biden reduced detentions—the number in custody today is around 38,000—and scrapped the requirement to remain in Mexico. He has tried less effective deterrents. His administration wants to steer migrants towards ports of entry where they arrive for appointments made via a smartphone app. Most are admitted with permission to stay for a year or two. By contrast people caught crossing illegally are presumed ineligible for asylum, with a few narrow exceptions, and quickly deported.

At least that is how it is supposed to work. In reality most migrants who cross illegally are still being released into the country, and irregular arrivals far exceed those at official crossings. Once on American soil a migrant can request asylum, which involves a screening with an asylum officer. Because of Mr Biden’s reluctance to pursue detention and an insufficient number of asylum officers, in November seven in ten were handed an NTA and sent on their way.

Last year the Biden administration also began granting parole to up to 30,000 Cubans, Haitians, Nicaraguans and Venezuelans each month, if applicants identified a financial sponsor in America. Again the goal was to make flows more orderly and decrease illegal arrivals. Permission to stay lasts two years but can be revoked at any time. Illegal crossings by Haitians, Nicaraguans and Cubans plummeted. But Venezuelans, who are less likely to have social ties to America, continue to enter illegally . “Most of the Venezuelans arriving now don’t have family, friends, relatives,” says Theresa Cardinal Brown, who served in the Department for Homeland Security in the Bush and Obama administrations.

Once across the border, migrants head to cities. Shelter systems in New York City , Chicago and Denver are overwhelmed and their mayors want Mr Biden’s help. This is partly the doing of Greg Abbott , the Republican governor of Texas, who is busing migrants to Democratic-run cities. But big cities are also natural magnets for migrants.

With an NTA in hand, new arrivals enter the court system, where the backlog is growing faster than judges can keep up. Cases in immigration court surpassed 3m in November. It takes more than four years on average just to get an initial asylum hearing. Doubling the number of judges would clear the backlog—but only by 2032, according to an estimate from the Congressional Research Service.

Half of asylum cases are denied, and decisions are inconsistent. One judge in Houston denied 95% of her asylum cases last year; another in San Francisco denied just 1% of hers. But the immense wait, low chance of detention and the prospect of work in America encourage migrants with a weak claim to cross the border. Prioritising the most recent arrivals’ cases would reduce this incentive, notes Stephen Yale-Loehr of Cornell Law School. A long journey seems less worth it if the reward is deportation rather than an NTA .

The looming election, Mr Trump’s perceived strength on border issues and Mr Biden’s desire to arm Ukraine mean that the president wants to make a deal. His openness to tougher border enforcement is also no doubt fuelled by Americans’ rightward turn on immigration. Polling from YouGov suggests that more Americans favour building a southern border wall than don’t. Even 32% of Democrats now say they support the idea, up from 20% in 2022.

Whether the House and the Senate can agree on reform is questionable. A deal may include funding for more Border Patrol agents, the ability to shut down migrant intake if encounters reach a certain level, a higher bar for migrants to pass their interview—so that they are not released into the country unless they are likely to actually receive asylum—and limits on parole. Any changes to asylum rules will almost certainly be challenged in the courts.

But House Republicans have waffled, often insisting that they would accept nothing other than HR 2, a hardline immigration bill passed along party lines last year that would be dead on arrival in the Senate. On the left, progressives do not want to tighten access to asylum. Both groups should beware. A new poll from The Economist and YouGov suggests that a plurality of Americans want Congress to pass a bill that both funds Ukraine and restricts asylum. The politicians should not ignore their voters. ■

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This article appeared in the United States section of the print edition under the headline “How America’s immigration policies failed”

United States January 27th 2024

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