Instruction manuals

10 Cost Allocation Overheads(1)

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   ACCY 302 (Chen) 1 Objectives for today  Cost allocation  Definition  Examples of cost allocation  Reasons for cost allocation   Agency implications  Incentive issues to consider when allocating costs  Cost allocation 2  Cost allocation : the assignment of indirect (common/joint costs) to different departments, processes, or products  Cost object : the product, process, department, or program to which a set of costs are allocated  Indirect costs : costs that cannot be directly traced to units produced or cost objects precisely because such costs are incurred in providing benefits to several product lines or users  Allocation base : a measure of activity associated with the pool of common costs being distributed to the cost objects  ACCY 302 (Chen)  Cost allocation 3 Department of Accountancy University of Illinois at Urbana-Champaign  Cost allocation requires the following steps:  Step 1: Define the cost objects  Step 2: Accumulate the common costs to be assigned to the cost objects  Step 3: Choose an allocation base  ACCY 302 (Chen)  Example of cost allocation 4 Department of Accountancy University of Illinois at Urbana-Champaign  Allocation of costs for e-mail service  Step 1  Cost object = departments (Manufacturing, Sales, R&D and Administration)  Step 2  Total indirect costs = 575,000 (computer lease 273,000 + labor 195,000 + software 78,000 + other costs 29,000)  ACCY 302 (Chen)


Jul 23, 2017
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