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ACCT3203 Contemporary Managerial AccountingWeek 2 Cost Allocation (I) Second Semester 2017 Prepared By: Professor Vincent Chong UWA Business School The University of Western Australia
Cost Allocation (I) •Learning Objectives: –Distinguish between the single-rate method from the dual-rate method –Understand how divisional incentives are affected by the choice between allocation based on budgeted and actual rates, and budgeted and actual usage –Allocate multiple support-department costs using direct method, step-down method, and reciprocal methods
Single-Rate v.s. Dual-rate Cost Allocation Methods •Single-rate cost allocation method –Pools all costs regardless of cost behaviour patterns (i.e., fixed or variable) in one cost pool –Allocates to cost object using the same rate per unit of single allocation base –Cost less to implement
Single-Rate v.s. Dual-rate Cost Allocation Methods [Cont.] •Dual-rate cost allocation method –Pools cost into two separate cost pools according to cost behaviour patterns (i.e., fixed or variable)