Chat Session 5 - Cost Accounting Chat Session 5 Chapter 14...

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Cost Accounting Chat Session 5
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Four purposes of allocating indirect costs to cost objects: 1. Provide information for decision making 2. Motivate managers and employees 3. Justify costs 4. Measure income and assets for reporting purposes
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Cost allocation is a three step process: 1. Determine the purpose for allocation of costs 2. Select allocation process 3. Allocate costs
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Criteria guide for cost allocation decisions 1. Cause and effect 2. Benefits received 3. Fairness or equity 4. Ability to bear
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Managers face several decisions when collecting and allocating indirect costs Which corporate costs should be allocated to divisions and products Depends of reason for allocating costs Controllability of costs by managers Benefits received by divisions How many cost pools should be used as the basis for allocation of indirect cost Single cost pool Numerous cost pools
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Homogeneous cost pool: all of the costs in the cost pool have the same or a similar cause and effect or benefits received relationship with the cost allocation base
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Customer profitability analysis Customer revenue analysis Distinguish & quantify revenue differences Caused by differences in volume from revenue differences resulting from level of price discounting (i.e. revenues vary due to purchase quantity and price charged for those purchases
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Categories of costs Customer output unit level costs: product handling costs of each unit sold Customer batch level costs: delivery costs for a customer order Customer sustaining costs: sales visits to a customer Distribution channel costs: salary of the manager of the retail distribution channel Corporate sustaining costs: general administration costs
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Customers that place frequent but small orders result in higher batch level costs Customers that order frequently may also cause higher levels of customer service and/ or more intensive sales visits Customer profitability profile Customer retention, growth, long run strategies, all should be considered
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Chapter 14 Cost Allocation, Customer Profitability Analysis, and Sales Variance Campbell Company collects information on two customers: Long Short Revenues $1,492,000 $640,000 Cost of goods sold $1,164,000 $486,000 # in stock orders 14 4 # out of stock orders 12 24 Campbell estimates the following activity based costs:
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This note was uploaded on 10/26/2009 for the course ACTP 5004 taught by Professor Montesarchio during the Summer '08 term at Nova Southeastern University.

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Chat Session 5 - Cost Accounting Chat Session 5 Chapter 14...

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