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About this document
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- 3 pages
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- $3 one-time, yours to keep
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- Subject
- Accounting, Business Management
This assignment covers direct and indirect cost allocation, and avoidable costs. It helps you practice cost allocation methods and decision-making in special orders.
What's inside
- Direct and indirect costs
- Cost allocation methods
- Special order decision-making
- Avoidable costs
- Relevant costing
- Cost allocation bases
Who it is for: Students taking an accounting course with ACC 202. (Undergraduate)
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Summary
Cost allocation involves assigning costs to different parts of a business. It covers direct costs, indirect costs and avoidable costs. Students learn how to allocate costs in different scenarios.
Direct and indirect costs
Direct costs are easily traced to a specific activity. Indirect costs are not easily traced to a specific activity. Examples of indirect costs include depreciation and an inspector's salary.
Cost allocation rates
Cost allocation rates are used to assign indirect costs. The allocation rate is calculated by dividing the total cost by the allocation base. The allocation base is the total number of units or miles.
Avoidable costs
Avoidable costs are costs that can be eliminated by not doing an activity. Product-level and facility-level costs are not avoidable. Batch-level costs are avoidable.
Special orders
Special orders can affect a business's existing customer base. A business must consider whether it has enough capacity to fulfill both special and regular orders.
Key terms
- Direct costs
- Costs that can be traced to a specific activity.
- Indirect costs
- Costs that cannot be traced to a specific activity.
- Allocation base
- The total number of units or miles used to calculate the allocation rate.
- Avoidable costs
- Costs that can be eliminated by not doing an activity.
- Batch-level costs
- Costs that are fixed relative to the number of units within a relevant range.
- Relevant range
- The range of activity within which costs behave in a certain way.
Questions this document helps with
- How do you allocate indirect costs?
- What are avoidable costs in a business?
- How do special orders affect a business's existing customer base?
Summary written with AI from the document's text.
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