# Cost Allocation

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Cost Allocation and Activity-Based Costing Systems

L E A R N I N G

O B J E C T I V E S

After studying this chapter, you will be able to 1. Explain the major purposes for allocating costs. 2. Explain the relationship between activities, resources, costs, and cost drivers. 3. Use recommended guidelines to charge the variable and fixed costs of service departments to other organizational units. 4. Identify methods for allocating the central costs of an organization. 5. Use the direct, step-down, and reciprocal allocation methods to allocate service department costs to user departments. 6. Describe the general approach to allocating costs to products or services. 7. Use the physical units and relative-sales-value methods to allocate joint costs to products. 8. Use activity-based costing to allocate costs to products or services. 9. Identify the steps involved in the design and implementation of activity-based costing systems. 10. Calculate activity-based costs for cost objects. 11. Explain why activity-based costing systems are being adopted. 12. Explain how just-in-time systems can reduce non-value-added activities

Cost Accounting System. The techniques used to determine the cost of a product or service by collecting and classifying costs and assigning them to cost objects.

A university’s computer is used for teaching and for government-funded research. How much of its cost should be assigned to each task? A city creates a special police unit to investigate a series of related assaults. What is the total cost of the effort? A company uses a machine to make two different products. How much of the cost of the machine belongs to each product? These are all problems of cost allocation, the subject of this chapter. University presidents, city managers, corporate executives, and others all face problems of cost allocation. This is the first of three...

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#### Cost Allocation

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#### Cost Allocation

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#### Cost Allocation

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#### Cost Behaviors and Allocations

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