COMM 294 Chapter Notes - Chapter 4: Activity-Based Costing, Cost Driver, European Cooperation In Science And Technology
Document Summary
To provide value whilst delivering high-quality products, systems such as departmental overhead rates or activity based costing. Why and how do companies re ne their cost allocation system> Simple cost allocation systems can lead to cost distortion. 3 roommates split everything equally in sharing a living space. Some people don"t use same amount of groceries or only one person uses internet. Some people pay for resources they don"t use and some pay for less then they use. This is a cost distortion as some are overcosted and others are undercosted. Pool of total costs stay the same, allocation changes. Review: using a plantwide overhead rate to allocate indirect costs. Predetermined moh = total estimate moh cost/estimate of total allocation base. Doesn"t matter whether it is worked in one department or many same rate throughout. Using departmental overhead rates to allocate indirect costs. Costs may end up distorted if the following conditions exists.
