costacctg13e_ppt_ch14

costacctg13e_ppt_ch14 - CHAPTER 14 C HAPTER Cost Allocation...

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CHAPTER 14 CHAPTER 14 Cost Allocation, Customer Profitability Analysis, and Sales-Variance Analysis Cost Allocation Assigning indirect costs to cost objects These costs are not traced Indirect costs often comprise a large percentage of Total Overall Costs Purposes of Cost Allocation Six-Function Value Chain
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Traditional Life Cycle approach may not yield the costs necessary to meet the four-purpose criteria for cost allocation Costs necessary for decision-making may pull costs from some or all of these six functions Criteria for Cost- Allocation Decisions Cause and Effect – variables are identified that cause resources to be consumed Most credible to operating managers Integral part of ABC Benefits Received – the beneficiaries of the outputs of the cost object are charged with costs in proportion to the benefits received Criteria for Cost-
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Allocation Decisions Fairness (Equity) – the basis for establishing a price satisfactory to the government and its
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costacctg13e_ppt_ch14 - CHAPTER 14 C HAPTER Cost Allocation...

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