Traditionally, manufacturers using labor-intensive technologies used a single basis of allocation based on labor, either in hours or in cost, associated with a single indirect cost pool. Un-expected expenses or unaccountable expenses to either allocate them to specific operation in which the cost can be Cost allocation essay or re-distributed, the cost either equitably or non-equitably across the organization.
We will write a custom essay sample on Cost Allocation for Decision Making or any similar topic specifically for you Do Not Cost allocation essay HIRE WRITER It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company.
Allocation of excess overhead costs provides disincentives among employees. Army Corp of Engineer conduct a Cost Allocation is to study a variety of possible approaches that could be used to distribute costs of the proposed alternatives. They both have their noticeable differences in many cases, but not in all.
Allocations may differ depending on whether a product or program is being costed for financial reporting, target pricing or costing, or life-cycle profitability analysis Business and Finance, It is important for the Senior Management to consider adopting an alternative cost allocation method to improve the current situation.
These reflect employees contributed to cost reduction and revenue increase. Costs with one or more characteristics in common may be accumulated into cost pools Business and Finance, Ending raw materials inventory35, In the past and some even today believed that costs are allocated only for accounting purposes.
It is important for the companies to find the proper method to allocate the costs. One issue, managers should be careful is not tie imposed cost to specific operation and judge their efficiency based on non-controllable cost imposed by the accounting department.
City of Seattle Budget for — retrieved from: Costs of long-lived assets are allocated and reclassified as an expense across two or more time periods. For planning and control, decisions are made about areas such as pricing, product costing, outsourcing, and investments.
Brewer p An example of direct labor is an assembly line worker. Get Full Essay Get access to this section to get all help you need with your essay and educational issues.
Purchase of raw materials, They are usually assessed together as multiple drivers rather than singly. You also have nonmanufacting costs and those cost are divided into two categories: Costs are then reclassified to the correct expense account, from these cost pools to one or more cost objects.
Apart from inappropriate cost drivers, the method allocated unnecessary resource to branch activities that are not related to operation. How do companies allocate costs?
To my understanding, the drivers selected, came from the sub-division of every State Departments. Attcahed is a Schedule for Cost of Goods Manufactured, this schedule shows elements of cost: Under the current volume-based cost allocation method, problems including inefficient resource allocation, disincentive among employees and weakened financial performance exist.
Department of Human Health Service web site, retrieved from: Government accounting and Manufacturing Accounting. The application of the principles established herein shall be in conformance with the generally accepted accounting practices.
In each instance, costs are determined to help management make better decisions for the company or agency Business and Finance, By having all the correct information available, decision-making becomes an easier task and having the incorrect information can be affect the company for months or even years.
Selling cost includes all cost that are incurred to secure customer orders and get the finished product to the customer. Cost allocation then is the assignment of an indirect cost to one or more cost objects. The decision-making process, is heavily relied on the information the company has received from the cost allocation process.
Why do companies allocate costs? A Do you agree with the cost drivers cost allocation factors? Does it make sense to have all of these individual costs and drivers identified or should there be a more uniform method of allocating costs?
A company also incurs other costs associated with its selling administive functions, but these costs are not included as part of manufacturing overhead. If not, our firm value may continue to lower and we may even lose our market share in the severely competitive market.
Army Corp of Engineer: For more than 50 years, DCA has reviewed cost allocation methods and practices of entities that receive Federal funds, helping to ensure that indirect costs paid by the FederalGovernment are fair, equitable, and in accordance with Federal regulations.Cost Allocation Methods The cost allocation process involves transferring costs from area or department and allocates them to another area or department.
“The goal of cost allocation is to associate costs as closely as possible with the patients who cause them to be incurred” (Finkler, Ward, and Baker, ). How and why cost allocation is used Published: October 29, Cost allocation is an extensively used practice in virtually every organization and in nearly every facet of accounting (Harris K., Curry W., Cost Accounting Prentice Hall 9th edition).
Cost Allocation ACC/ April 23, Cost Allocation The purpose of cost allocation is to identify and correctly allocate costs associated with a job, product, or service. Rio Grande Medical Center Cost Allocation Concepts HCM Introduction to the Financial Management of Healthcare Organizations 1.
Is it “fair” for the. Cost Allocation Essays: OverCost Allocation Essays, Cost Allocation Term Papers, Cost Allocation Research Paper, Book Reports. ESSAYS, term and research papers available for UNLIMITED access.
Cost allocation is the process of identifying and assigning the costs of services necessary for the operation of a business or other type of entity. Unlike a cost rating, the allocation is less concerned with the actual amount of the cost, and more concerned with allocating or assigning the cost to the correct unit within the organization.Download