RSM322 TopicD - 1 2 Agenda Review of Cost Allocation...

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2/3/2011 1 Topic D Cost Allocation of Service Departments, Joint Products & By-Products While you are waiting, please take out and display your name cards 1 Agenda Review of Cost Allocation Strategic Importance of Cost Allocation Allocation of Service Departments Allocation of Joint Costs & By-Products 2 Review of Cost Allocation Cost allocation allows many indirect and/or fixed costs to be allocated to the price of products or services Typically, cost allocation is used for manufacturing overhead as a way to determine the total product cost Cost allocation also relates to ethical issues especially when costs are used for pricing decisions Review of Cost Allocation There are three general methods for allocating costs: Single Step (Volume Based) Departmental Approach Activity-Based Approach
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2/3/2011 2 Strategic Importance Determines accurate costs for “normal” pricing decisions Motivates managers to achieve company goals Provides incentives to make decisions that are beneficial to the company as a whole Fairly ” determines the rewards for managers Service Departments There are several unique issues with services: Not all departments use the service Not all departments use the service to the same extent
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