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Unformatted text preview: hotocopying machines: a simple one and a sophisticated one. If senior management sets up each machine as a separate cost center, the cost of a job will depend upon (a) the rate for the machine that is used, and (b) the amount of
time the machine is used. The cost thus will come close to the true consumption of resources. If, on the other hand,
senior management uses one cost center, the cost will be based on an average rate for the two machines. It will
overstate the cost of using the simple machine, and understate the cost of using the sophisticated one.
Unfortunately, resource and time constraints sometimes make it necessary to group heterogeneous activities
into a cost center. When this happens, the costs that are allocated to a receiving cost center or attached to a cost object will not be solely a function of the allocation basis or the time the product spends in a given cost center. They
also will depend upon the nature of the activities that take place while the cost object is in the cost center.
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- Spring '14