JJ06 - Cost Allocation and ActivityBased Costing Chapter 6:...

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1 Cost Allocation and Activity- Based Costing Chapter 6: Purposes of Cost Allocation Process of Cost Allocation Steps include: ± Identify the cost objectives ± Form cost pools ± Select an allocation base to relate the cost pools to the cost objectives.
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2 Process of Cost Allocation Determining the Cost Objective Cost Objective : Determine the product, service or department that is to receive the allocation. Determining the Cost Objective
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3 Forming Cost Pools Cost pool : A grouping of individual costs, the sum of which is allocated using a single allocation base . Cost pools could include: 1. Departments (maintenance or personnel departments) 2. Major Activities (equipment setups) Selecting an Allocation Base 1. Allocation Base : Very important to choose a base that relates the cost pool to the cost objectives . 2. Allocation should be based on a cause-and-effect relationship between costs and objectives. 3. If cause-and-effect cannot be
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This note was uploaded on 05/12/2010 for the course ACG 5065 taught by Professor Asare during the Spring '08 term at University of Florida.

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JJ06 - Cost Allocation and ActivityBased Costing Chapter 6:...

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