Once terms and concepts have been defined we can take

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Unformatted text preview: the main objective in choosing cost centers is to organize costs into homogeneous collections of activities. When this is the case in a service center, and when an appropriate allocation basis has been chosen, we can be fairly certain that the portion of the service center’s costs that are allocated to other cost centers is a reasonably fair measure of their use of that service center. Similarly, with homogeneous activities in a production or revenue center, the portion of the center’s costs that are attached to a cost-object passing through (or worked on in) that center are completely dependent upon the amount of time the product spent in the cost center, not on what happened to the product while it was in the cost center (since, if the cost center consists of homogeneous activities, the same activities will take place for every cost object; the only difference will be the length of time that they take place). As an example, consider the photocopying company discussed earlier in the chapter, where there were two p...
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