Managing and allocating support service costs

Depending on the root cause of the cost, it can be allocated to one or multiple areas of the business.

A cost object is an item or activity, such as a department or product, that requires you to separately weigh costs. Depending on your business, fixed costs such as rent, insurance and salary of full-time employees generally stay constant.

In this case, you may charge all the departments that use that fixed asset a cost, which enables you to balance demand with supply. Specifically, if the resources were free, the demand for them likely would be greater than if you assigned a cost to them.

Specifically, you can easily identify the amount spent on specific areas of the company. The direct method is the most widely used alternative for allocating costs. For example, if your human resources, accounting and customer service departments use the same computer system, you would spread the cost out for the computer system over all three departments.

Controls Limited Resources By knowing how to use company resources and making it known that there are costs associated with those resources, you generally limit the demand for them. For example, the production department controls a fixed asset, such as machinery or motor vehicles; however, demand outweighs supply.

For example, your accounting and payroll departments are the only divisions that hired employees during a particular month. This allocation has more to do with managing the demand than the actual cost for obtaining the asset.

Variable costs rise directly in accordance to the level of sales in dollars or units sold, such as shipping charges, sales commissions and cost of goods sold.

Reasons to Allocate Costs

A number of reason exits for cost allocation. Accurate product cost information also enhances the quality of financial reporting and improves decision-making within the company.

Enhances Resource Usage By assigning costs to specific departments, you may use those costs only to the point that their benefits supersede their cost. Considerations One of the best ways to understand cost allocation is to view it as a process that requires you to identify, aggregate and assign costs to cost objects.

After determining the total cost to human resources for hiring the respective employees for that month, you would allocate the specific percentages and flat dollar amounts of the total cost to the accounting and payroll departments.

The process requires you to assign costs so that all components included in that cost are divided accordingly.Buy Cost Management: Strategies for Business Decisions 4th edition () Cost Management: Strategies for Business Decisions - 4th edition.

Managing and Allocating Support-Service Costs. Part 4 Planning and Decision Making. Chapter Managing and Allocating Support-Service Costs. ANSWERS to Review Questions.

The following factors should be considered when deciding whether to outsource a support service. May 10,  · Managing and Allocating Support-Service Costs.

Managing Internal Support-Service Costs Alternatives DISADVANTAGES Department Costs Problem Allocating costs when service departments provide services to each other Solutions Direct method Step method Reciprocal method.

Chapter 10 - Managing and Allocating Support-Service Costs Occupancy related support-service costs are most appropriately allocated using a space occupied type of cost-allocation base.

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25 The IT Support Costs identified in the tables refer to the cost of the internal IT support 26 groups providing IT Service and Project Portfolio management, IT Enterprise Strategy 27 and Architecture and IT Programming and Performance Management.

Chapter 10 - Managing and Allocating Support-Service Costs Rogers Corporation has two production departments, Assembly and Finishing and three service departments, Personnel, Maintenance and Cafeteria. Data relevant to Rogers are: Assembly and Finishing work on two jobs during the month: Job and

Managing and allocating support service costs
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