Textbook Notes (362,882)
Canada (158,081)
MGAC03H3 (13)
G.Quan Fun (10)
Chapter 14

Chapter 14 Notes

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University of Toronto Scarborough
Financial Accounting
G.Quan Fun

Chapter 14 Cost Allocation NotesPurpose of Cost Allocationfour possible reasons for allocating period costs are1to provide information for economic decisions2to motivate managers and employees3to justify costs or compute reimbursement4to measure income and assets for reporting to external partiesIdentify the direct Identify the purpose inputs that are already of costallocationmeasuredAnalyze the Assign the indirect alternatives and select costs to each cost the best one for the objectdenominatorCalculate the costIdentify indirect costs allocation rate for included in cost each indirect cost pools or poolnumeratorsThe Relevance Criterionmanagers will decide upon the number of period cost pools and their costallocation bases based on relevancehaving made some reasonable assumptions about what period cost are relevant justification for choice can be made using causeandeffect and benefitsreceived criteria especially when purpose is related to either economic decisions or motivationthe reason is that clear causal chains improve the probability that changes to causes will change the costsbenefits received ensures that those receiving little or no material benefit from the consumption of overhead during a specified time period will not be burdened with its costtwo other justifications are fairness and ability to bear the cost burdenDecision Points1What are the four purposes for allocating costs to cost objectsThe four purposes of cost allocation are a to provide information for economic decisions b to motivate managers and employees c to justify costs or compute reimbursement and d to measure income and assets for reporting to external parties2What are the key decisions man
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