Ch.6_Cost allocation_Inst

Ch.6_Cost allocation_Inst - CHAPTER 6 Cost Allocation...

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1 CHAPTER 6 Cost Allocation Direct versus indirect costs Cost allocation basics Cost allocation methods Direct method Reciprocal method Step-down method
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2 Learning Objectives Define and identify direct vs. indirect costs Discuss cost drivers and the effects of changing cost drivers READ book for more info. Perform direct and step-down cost allocations
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3 Cost Classification Cost classifications based on relationship to the unit of activity: Direct - costs unique and exclusive to a sub-unit Indirect - costs associated with shared resources used by entire organization What are some examples of direct & indirect costs for a hospital surgery department?
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4 Cost Classification Note that volume and unit cost classifications overlap one another Direct Indirect Total Fixed 75,000 15,000 90,000 Variable 30,000 25,000 55,000 Total 105,000 40,000 145,000
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5 Cost Allocation Purpose - assign indirect (overhead) costs to sub-units Administration Surgery Laboratory Radiology Direct costs of Administration are indirect costs of Patient Service Departments.
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6 So what? Cost allocation allows organizations to
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This note was uploaded on 02/24/2010 for the course HPM 340 taught by Professor Reiter during the Spring '10 term at UNC.

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Ch.6_Cost allocation_Inst - CHAPTER 6 Cost Allocation...

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