Cost Allocation

The current cost system allocates overhead costs once a year, as a function of direct labor dollars. This allocation strategy results in:

Apple Valley Family Practice is a medical practice with four locations in the Minneapolis/St. Paul area. The clinical staff consists of 20 physicians, all of whom practice in one or more areas of family medicine, and 46 physician extenders and nurses.

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

This type of costing method is used when there is a operation carried out in different stages and not the process. In reliance digital operations start from the initial booking that takes place from the customers end through the process of carrying out that booking and completing the order on time. The company incurs many costs in the entire operation.

The costing approach should be based on per Transaction Basis rather than on per kit or per pound basis because of the following reasons:

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

Cost of 401’s – we have 3,000 in inventory so 3,000 x 0.4 = 1,200

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

Under the existing cost system for the turning machine area, there are two direct costs and three cost pools for overhead costs. The two direct costs are simply Direct Labor and Direct Material, which are traced to the cost object, which is Machine Parts. The total overhead is split into three cost pools, which are the following: overhead applied on direct labor, overhead applied on material dollars, and overhead applied on ACTS machine hours. Furthermore, each cost pool is broken down into direct and period sub categories. The mentioned cost pools for the following cost drivers: Direct Labor dollars, Material dollars, and machine hours.

A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases (Variable Cost, n.d.); in the case study for all cost per event such

Allocating overhead costs is one of the important tasks and is necessary to be done by management accountant. One key reason is that in term of pricing strategies, many firms decide their products’ selling price based on their cost. And the selling price has to cover all the costs and profit.

The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making

In order to efficiently calculate cost or expenses, Mal Ltd should adopt a cost classification approach. Cost classification is the separation of costs or expenses into different categories. The main categories that is largely used in cost classification are direct and indirect costs which can be broken down into many different costs that are expensed in the business. Cost classification can improve a business in many ways. One of the main benefits is through cost classification, profits can be increased. This is done by having an effective cost control and cost reduction (Kaplan & Cooper, 1998. By breaking down costs into fixed and variable costs, it will be easier to control and reduce costs. Cost classification can also help in the fixation of selling price. As the cost of a product can be broken down into more specific costs, it enables the management of Mal Ltd to adopt the most suitable selling price. Classifying costs can help Mal Ltd disclose which activities are profitable and non-profitable. This enables management to decide whether they want to continue carrying out and expanding profitable activities or eliminating unprofitable activities. It also allows management to improve budgeting (Kaplan & Cooper, 1998). With cost classification, management of Mal Ltd can ascertain which costs belong to which department and this allows them to efficiently set budgets for different departments in accordance with the level of activity within the department.

Oak City is an interdisciplinary case that involves cost allocation and determination issues in a