Unformatted text preview: nged so that 38k was 30k ---> now the total ﬁrm beneﬁts (not just wharton) because the
total cost will go down to 87k instead of 90k ---> hence the ﬁrm will use that new alternative Some advantages of the stand-alone approach: Some disadvantages of the stand-alone approach: Take Aways
1. There are number of reasons why a business would allocate costs:
a) for product costing purposes
b) for performance evaluation, motivation, and control. 2. For an independent support department, costs may be allocated using
a) the single rate method, where the department’s fixed and variable costs are
allocated using a single combined rate;
b) the dual rate method, where the departments fixed costs are allocated using
one rate and its variable costs using another; 3. In general, the dual rate method is preferred to the single rate method. 4. And, to allocate variable costs, the budgeted allocation rate is preferred to the actual
rate. 5. To allocate fixed costs, there are several alternatives.
a) Allocate based on the budgeted (actual) use of support services
b) Use the incremental cost method
c) Use the ability-to-bear method
d) Use the stand alone method. 28...
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- Winter '14