Lecture 6 - Cost Assignment: Absorption Costing Flashcards
What is Plant wide (Blanket) absorption costing?
In Plant-wide (blanket) costing, a single rate is used to allocate all of a companies indirect costs to products.
The plant-wide costing method is …… used by firms.
Not often
A better method than Plant-Wide OH allocation is the…
Two-stage allocation process
What are two benefits of using the two-stage allocation process?
- Different products gather different costs, it takes these into account.
- Captures possible impact of overhead intensive departments
What are the stages within the ‘two-stage allocation process’?
- First-Stage allocations
2. Second Stage Allocations
In the First stage of the two-stage allocation method, Total Overhead costs are assigned to what?
Cost Centres (Cost pools)
What is a cost centre?
Each department is known as a cost centre:
- Product cost centres (Machines, finishing departments)
- Service cost centres (General Admin, Personal, Accounting, Catering)
Generally, the more cost centres…
The more accurate the indirect cost allocation
When increasing the number of cost centres within the two-stage allocation process, what is important to consider?
The increased cost
Under the first stage allocation, even costs that are indirect to the…
Product can be allocated to specific departments
The second stage of the allocation method involves allocating the OH costs for each department to…
Each cost object within the department
Should all costs be assigned for decision making?
Not necessarily, only relevant costs should be allocated
