16.4 Allocating common costs

Question 1

the cost of operating a facility, activity, or cost object when that facility, activity, or cost object is shared by two or more users

Answer 1

common costs

Question 2

2 methods of allocating common costs

Answer 2

1. stand alone method
2. incremental method

Question 3

determines the weighhts for cost allocation by considering each user of the common cost facility or activity as a seperate entity
which method of allocating common cost is this?

Answer 3

stand alone cost allocation method

Question 4

this method is viewed as reasonable because each employer bears a proportionate share of total costs in relation to the individual stand alone costs

Answer 4

stand alone method

Question 5

ranks the individual users of a cost object in the order of users most responsible for the common cost and then uses this ranking to allocate costs among those users.
which method of allocating common cost is this?

Answer 5

incremental cost allocation method

Question 6

• the first ranked user of the cost object in the incremental method
• is allocated costs up to the costs of the primary user as a stand alone user

Answer 6

primary user

Question 7

• the second ranked user
• is allocated the additional cost that arises from two users instead of only the primary user

Answer 7

first incremental user

Question 8

• the third ranked user
• is allocated the additional cost that arises from three users instead of two users, and so on

Answer 8

second incremental user

Question 9

the difficult witht he method is that every user prefers to be viewed as the incremental party

Answer 9

incremenal method

Question 10

• one approach to address who gets to be the incremental party in the incremental method
• considers each party as first the primary party and then the incremental party

Answer 10

shapley value method