Chapter 15: Allocation of Support-Department Costs, Common Costs, and Revenues Flashcards
Stand-Alone Cost-Allocation Method
Determines the weights for cost allocation by considering each user of the cost as a separate entity.
Incremental Cost-Allocation Method
Ranks users in order of use and allocates actual costs based on rank, then what is remaining is allocated to the lowest rank.
What are the 2 ways the U.S. government reimburses contractors?
How is this related to allocating costs?
- The contractor is paid a set price without breaking down the actual cost data.
- The contractor is paid after an analysis of actual cost data. Sometimes resulting in a costs-plus contract.
These terms often give clear guidelines on how allocation of costs should be done under the Cost Accounting Standards Board (CASB).
Revenue allocation
Occurs when revenues are related to a particular revenue object but cannot be traced to it in a cost-effective way.
Common Costs
The cost of operating an activity that is shared by 2 or more users.
This cost is lower than the individual cost of the activity to each user.
Step-Down Method
Allocates support costs to other support departments in a sequence, then allocates to operations.
Direct Method
Allocates support costs only to operations.
Does not allocate support cost to other support departments.
Single-rate Method
Allocates costs in each service department to each production department using the same rate per unit of a single allocation base.
No distinction is made between fixed and variable costs.
Dual-rate Method
Segregates costs within each cost pool into variable**-cost pool and **fixed-cost pool.
Each pool uses a different cost-allocation base.
Reciprocal Method
Allocates all support costs of other support departments to each other, then operations.
What are the 3 methods used to allocate the costs of reciprocal support departments?
- Direct Method
- Step-Down Method
- Reciprocal Method
