Allocation of costs

Question 1

What is the purpose of a cost allocation system?

Answer 1

1)To assign costs to cost objects when costs can’t be directly covered 2) Between the cogs and inventories for internal and external profit reporting and to provide relevant decision making info.

Question 2

What is Job-order cost assignment system?

Answer 2

Products manufactured for specific orders thus there’s the need for keeping track for each product or batch.

Question 3

Direct Cost tracing v Cost allocation.

Answer 3

DCT- For when cost can be directly assigned to cost object.
CA- For indirect costs/MOH using cost drivers/ Allocation bases(basis used to allocate costs to cost object)

Question 4

Cause & Effect v Arbitrary allocation.

Answer 4

C&E: For when the allocation base is a significant determinant of cost.
Arb: For when the allocation base is not significant (less accurate and more likely to provide misleading info)

Question 5

Direct/marginal v Absorption costing system

Answer 5

Direct- Assigns only direct costs to cost objects.
Absorp- Assigns both direct & indirect costs to cost objects.

Question 6

Under ACS: ABC vs TCS

Answer 6

TCS- Uses arbitrary allo
ABC- Uses Cause & Effect