ch14 slides

ch14 slides - Cost Allocation, CustomerProfitability...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
14 - 1 Cost Allocation, Customer- Profitability Analysis, and Sales-Variance Analysis Chapter 14
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
14 - 2 Four purposes for allocating costs to cost objects.
Background image of page 2
14 - 3 Purposes of Cost Allocation 1. To provide information for economic decisions 2. To motivate managers and other employees 3. To justify costs or compute reimbursement 4. To measure income and assets for reporting to external parties
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
14 - 4 Dimensions of Cost Allocations and Profitability Analysis Customer Division Sales  Territory Product Company
Background image of page 4
14 - 5 Guiding cost-allocation decisions requires using appropriate criteria.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
14 - 6 Criteria to Guide Cost-Allocation Decisions Cause-and-effect: Using this criterion, managers identify the variable or variables that cause resources to be consumed. Benefits-received: Using this criterion, managers identify the beneficiaries of the outputs of the cost object.
Background image of page 6
14 - 7 Criteria to Guide Cost-Allocation Decisions Fairness or equity: This criterion is often cited on government contracts when cost allocations are the basis for establishing a price satisfactory to the government and its suppliers. Ability to bear: This criterion advocates allocating costs in Proportion to the cost object’s ability to bear them.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
14 - 8 Role of Dominant Criteria The cause-and-effect and the benefits- received criteria guide most decisions related to cost allocations. Fairness and ability to bear are less frequently used. Why?
Background image of page 8
14 - 9 Role of Dominant Criteria Fairness is an especially difficult criterion to obtain agreement on. The ability to bear criterion raises issues related to cross-subsidization across users of resources in an organization. Least profitable business’ usually get most of management’s time
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
14 - 10 Decisions faced when collecting costs in indirect-cost pools.
Background image of page 10
14 - 11 Allocating corporate costs to divisions and products All corporate costs to divisions Incurred to support activities of the divisions Motivates division managers to examine how corporate costs planned and controlled Used to determine full cost of product No corporate costs to divisions Because costs are not controllable by division managers Only some corporate costs to divisions Costs widely perceived as causally related to division activities Cost widely perceived that provide explicit benefits to divisions
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
14 - 12 Use of a single cost pool or homogeneous cost pool Similar (or same) cause-and-effect or benefits-received relationship with cost-allocation base Same results for pool as if each activity was allocated separately Fewer cost pools required to accurately explain differences in how divisions or products use company resources Use of numerous individual corporate cost pools Costs not homogeneous with current pools Resources used differently by divisions Information technology reduces cost/increases benefit of using multiple pools View of managers Improvements in information-gathering technology Choosing cost-allocation base to use in allocation: ones that have best cause-and-effect relationships with costs Choosing Cost Pools
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 77

ch14 slides - Cost Allocation, CustomerProfitability...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online