Professional Documents
Culture Documents
Seven
Tiara Eka Putri Iskandar (1213003)
Edward Tandi (1213019)
Ho, Charlie Hosana (1213053)
Learning Objectives
Identify the strategic role of cost allocation
Explain the ethical issues of cost allocation
Use three methods for allocating service
department costs to production departments
Explain problems in implementing each of the three
departmental cost allocation methods
Use the three methods for allocating joint product
costs
Understand alternative methods to account for byproducts associated with a joint production process
The Departmental
Approach
The Three Phases of Departmental Cost
Allocation
Departmental Approach:
Phase 2
Three methods are used to allocate service
department costs:
Key Implementation
Issues
Choosing the most accurate method is key
Determining an appropriate
allocation
base and a percentage amount for service
provided by the service departments is
often difficult
Often firms have difficulty distinguishing
fixed and variable costs
Using budgeted vs. actual amounts?
Allocated costs can exceed external
purchase cost
Easy to use
The criterion for the
allocation of
the joint costs is objective
Disadvantages
Easy to calculate
Advantages
Relative
net realizable values (NRV) of the products
Produces an allocation that yields a predictable and comparable level of
profitability
By-Product Costing
Four Methods: Two based on assets,
two based on revenues:
Revenue Methods:
Asset Recognition
Methods
Revenue Methods