Overhead Cost Accounting of Development Project

The present scenario in manufacturing industries is that there is no standardized method for project cost accounting especially the overhead costs. The current practice at TAML is to assume 15% of total cost which is lot more in the actual scenario. As all of us know, a project will have two basic phases – Design & Development Phase & Production Phase and this project focuses on the monetary resource accounting involved during the development stage of the project. In the beginning we discuss about the concepts of project management, portfolio management, program management, types of costs, cost categorization based on their behavior, types of resources, resource cost management etc. The literature survey in this area has helped in understanding the developments made in the managerial accounting and also concerns prevailing in this area thereby helped in deciding the area of focus. All the cost related data regarding an aerospace project was collected from various cross functional departments involved in that project and arrived at the total project cost. This was validated with the Project Manager of that project. A detailed project plan was created using Microsoft Project Plan by adding project activities in its order of precedence with all the predecessors linked. The resource rates were updated in the resource sheet and thereby obtained resource costs. These resource costs are the actual cost spent on each of the CFT member and other development activities. The Actual Resource Cost spent on the project was compared with the Planned Resource Cost derived from total project cost, it was found that the actual cost more than the planned cost and hence concluded that the overhead cost assumption must be increased to some extent so as to prevent the project from incurring loss.