Module 3

Question 1

Four basic requirements when defining cost centers

Answer 1

1. Homogeneity of cost drivers (e.g. within a manufacturing department, the important cost driver is the amount of products you produce)
2. Matching of cost centers and the assignment of responsibilities
3. Completeness and clarity
4. Cost-benefit criterion (only create cost centers if the benefit exceeds the cost)

Question 2

Two criteria when defining cost centers

Answer 2

1. Depending on the business function of the departments
2. Depending on how costs are allocated

Question 3

Primary cost allocation

Answer 3

Allocating indirect costs to indirect and direct cost centers

Question 4

Interdepartment cost allocation

Answer 4

Allocating costs from the indirect cost center (costs that are relatively far from each individual product e.g. energy, maintenance) to the direct cost centers

Question 5

Task of primary cost allocation

Answer 5

Allocation of the costs as accurately as possible to those cost centers where the respective costs were incurred

Question 6

Two types of primary costs

Answer 6

• Cost center direct costs
• Cost center indirect costs

Question 7

Cost center direct costs

Answer 7

Costs that can be directly traced to one cost center (e.g. the salary of the head of the material warehouse)

Question 8

Cost center indirect costs

Answer 8

Costs for which it is not possible to trace them directly to a unique cost center (e,g, salary of the employee responsible for material storage and production preparation)

Question 9

Methods for the allocation of service-department costs

Answer 9

Task: allocate costs that have occurred in the indirect cost center to a direct cost center.
1. Direct costing method
2. Cost center allocation method
- Direct method
- Step-ladder method
3. Cost center compensation method
- Method of credits and debits
- Reciprocal method based on iterations
- Reciprocal method based on equations
4. Cost object method

Question 10

Recipricol method based on equations

Answer 10

Concept: Determination of transfer prices by solving a system of equations
- The only method that gives you the exact results
One equation is formulated for each indirect cost center:
𝑞𝑗 𝑐𝑗 = 𝐶𝑗 + (Sum of) 𝑞𝑖𝑗 𝑐𝑖

n - Number of indirect cost centers
i, j - Indexes of the cost centers
Cj - Primary overhead costs of the indirect cost center j
qj - Total volume of services of the indirect cost center j
qij - Volume of services transferred from indirect cost center i to cost center j
ci - Transfer price of indirect cost center i
cj - Transfer price of indirect cost center j

Question 11

Reciprocal method based on iterations

Answer 11

Concept: Repeated allocation of the costs for internal services in several steps

Question 12

Method of credits and debits

Answer 12

Concept: Assumption that transfer prices for internal services already exist

Question 13

Step-ladder method

Answer 13

Concept: Consideration of services between indirect cost centers, but only in one
direction