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We then determine each remaining cost center’s proportion of the activity. For example, if the “activity” for
the plant-wide depreciation cost center is square feet, we determine each cost center’s proportion of the square
footage in all cost centers except the one being allocated. We use that proportion to allocate the service center’s
costs to all remaining cost centers (both service centers and production centers).
Distribution versus Allocation. It is important to distinguish between “distribution” and “allocation.”
Distribution, discussed in Decision #3, precedes allocation, and serves to place costs into service and production
centers. Costs that are direct for a given cost center need not be distributed, while indirect costs (i.e., those applying
to more than one cost center) must be distributed to the centers to which they apply. By contrast, allocation places
service center costs in production centers to determine the full cost of each production center.
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- Spring '14