This is the simplest method of the three and is used

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Unformatted text preview: 0 is now in the Maintenance cost center, and $10,000 is in the Administration cost center. Note also that, although we distributed this particular indirect cost between two service centers, we could have an indirect cost that applied to more than two service centers, or even, conceivably, to multiple service and production centers. Decision #4. Choosing Allocation Bases for Service Center Costs The hourly cost of mowing relies on more than the direct and distributed indirect costs of that cost center. It also must include the center’s fair share of the organization’s service center costs. The same is true for the hourly cost of special projects. As you might imagine, the notion of fair can be highly debatable in cost accounting—just as it is in other aspects of life. Because of the need to allocate service center (sometimes called “overhead” and sometimes called “indirect”) costs, the fourth decision in the cost accounting process is the choice of bases of allocation. That is, we must choose a metric for each service center that measures its use by the remaining cost centers (both other service centers as well as production centers) as accurately as possible. In this regard, we are seeking the activity that causes the existence of a service center’...
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