chapter 5 Flashcards
homogeneous cost pool
cost pool in which all the activities whose costs are included in the pool have the same or a similar cause-and-effect relationship or benefits-received relationship between the cost allocator and the costs of the activity. homogenous indirect cost pools enable more accurate product, service, and customer costs to be obtained.
single-rate cost-allocation method
pools all costs in one cost pool and allocates them to cost objects using the same rate per unit of the single allocation base. there is no distinction between costs in the cost pool in terms of cost variability.
dual-rate cost-allocation method
first subdivides one cost pool into two sub-pools. each sub-pool has a different allocation rate or different allocation base.
operating department
adds value to a product or service that is observable by a customer.
support department
provides the services that maintain other internal departments in the organisation.
direct allocation method
most widely used method of allocating support departments’ costs. it allocates each support department’s costs directly to the operating departments. the benefit is its simplicity. there is no need to predict the usage of support department resources by other support departments.
step-down allocation method/sequential allocation method
allows for partial recognition of the services rendered by support departments to other support departments. this method requires the support departments to be ranked. the costs in the first-ranked department are allocated to the other support and operating departments, etc.
reciprocal allocation method
allocates costs by explicitly including the mutual services provided among all support departments.
complete reciprocated cost/artificial costs
the actual costs incurred by a support department plus a part of the costs of the other support departments that provide service to it. it is always larger than actual costs.
common cost
cost of operating a facility, operation, activity, or other cost object that is shared by two or more users. there are two methods to allocate these costs: the stand-alone method and the incremental method.
stand-alone cost-allocation method
uses information pertaining to each cost object as a separate operating entity to determine the cost-allocation weights. it’s fair because each employer bears a proportional share of total costs in relation to their individual stand-alone costs.
incremental cost-allocation method
ranks the individual cost objects and then uses this ranking to allocate costs among those cost objects.
labour-paced operations
worker dexterity and productivity determine the speed of production. machines function as tools that aid production workers. direct manufacturing labour costs or direct manufacturing labour hours may still capture cause-and-effect relationships, even if operations are highly automated.
machine-paced operations
machines conduct most phases of production. machine operators may simultaneously operate more than one machine. workers focus on supervising the product line and general troubleshooting rather than operating the machines. machine hours will better capture cause-and-effect relationships here.
cost hierarchy
categorisation of costs into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining cause-and-effect relationships.
