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Unformatted text preview: e center costs to the production centers.
Determining an Appropriate Basis of Allocation. In the case of Lawncare, Inc., we already have determined the direct costs of each cost center and distributed indirect costs to the appropriate cost centers. If we are to
determine the cost for each production center, we now must choose an allocation basis for each service center
(maintenance and administration in this case) so that we can allocate its costs. How might we go about this?
Let's begin with maintenance. Our goal is to find a basis of allocation that measures the use of the maintenance
resource by the other cost centers as accurately as possible. Although several allocation bases may be available, one
that might be appropriate is the number of machines. That is, the more machines a receiving cost center has, the
more it will use the maintenance resource, and therefore the greater should be its share of the maintenance expense.
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This document was uploaded on 03/30/2014.
- Spring '14