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| Process of dividing a total cost into parts and assigning the parts to the relevant cost objects. |
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| The factor used as the base for cost allocation |
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| The mathematical factor used to allocate or assign costs to a cost object, determined by dividing the total cost to be allocated by the appropriate cost driver or allocation base. |
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| Measuring the cost of a particular object by combining many individual costs into a single total cost. |
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| Process of dividing a total cost into parts and assigning the parts to relevant objects. |
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| Any factor, usually a volume measure, that causes cost to be incurred |
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| Items for which managers need to measure cost |
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| Assigning specific costs to the objects that cause their incurrence. |
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| Cost that is easily traceable to a cost object and for which it is economically feasible to do so. |
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| (1) Allocation method that allocates service center costs directly to operating department cost pools |
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| Cost that either cannot be easily traced to a cost object or for which it is not economically feasible to do so. See also overhead. |
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| Interdepartmental Service |
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| Service performed by one service department for the benefit of another service department. |
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| Common costs incurred in the process of making two or more products. |
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| Separate products derived from common inputs. |
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| Departments that perform tasks directly related to accomplishing the organization's objectives. (Contrast with service departments.) |
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| Indirect costs of operating a business that cannot be directly traced to a product, department, process, or service, such as depreciation. |
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| Predetermined Overhead Rate |
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Definition
| Allocation rate calculated before actual costs or activity are known |
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| Allocation method that uses simultaneous linear equations to account for two-way relationships among service centers (service centers both provide services to and receive services from other service centers) |
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| Two-way relationships in which departments provide services to and receive services from one another. |
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| Departments such as quality control, repair and maintenance, personnel, and accounting that provide support to other departments. (Contrast with operating departments.) |
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| Stage in the production process where products made from common inputs become separate and identifiable. |
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| Two-step allocation method that accounts for one-way interdepartmental service center relationships by allocating costs from service centers to service centers as well as from service centers to operating departments |
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Term
| Managers must have reliable cost information to: |
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Definition
Price products.
Evaluate performance.
Control operations.
Prepare financial statements. |
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Term
| Allocation of indirect costs involves a two-step process: |
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Definition
1. Calculate an allocation rate by dividing the indirect cost by the total amount of the cost driver activity.
2. Allocate the indirect cost by multiplying the allocation rate times the weight of the cost driver activity.
The weight of the cost driver activity is the amount of the cost driver consumed in the department. |
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