# Shared Flashcard Set

## Details

Chapter 4
BMGT 221
24
Accounting
11/02/2008

Term
 Allocation
Definition
 Process of dividing a total cost into parts and assigning the parts to the relevant cost objects.
Term
 Allocation Base
Definition
 The factor used as the base for cost allocation
Term
 Allocation Rate
Definition
 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.
Term
 Cost Accumulation
Definition
 Measuring the cost of a particular object by combining many individual costs into a single total cost.
Term
 Cost Allocation
Definition
 Process of dividing a total cost into parts and assigning the parts to relevant objects.
Term
 Cost Driver
Definition
 Any factor, usually a volume measure, that causes cost to be incurred
Term
 Cost Objects
Definition
 Items for which managers need to measure cost
Term
 Cost Tracing
Definition
 Assigning specific costs to the objects that cause their incurrence.
Term
 Direct Cost
Definition
 Cost that is easily traceable to a cost object and for which it is economically feasible to do so.
Term
 Direct Method
Definition
 (1) Allocation method that allocates service center costs directly to operating department cost pools
Term
 Indirect Cost
Definition
 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.
Term
 Interdepartmental Service
Definition
 Service performed by one service department for the benefit of another service department.
Term
 Joint Costs
Definition
 Common costs incurred in the process of making two or more products.
Term
 Joint Products
Definition
 Separate products derived from common inputs.
Term
 Operating Departments
Definition
 Departments that perform tasks directly related to accomplishing the organization's objectives. (Contrast with service departments.)
Term
Definition
 Indirect costs of operating a business that cannot be directly traced to a product, department, process, or service, such as depreciation.
Term
Definition
 Allocation rate calculated before actual costs or activity are known
Term
 Reciprocal Method
Definition
 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)
Term
 Reciprocal Relationships
Definition
 Two-way relationships in which departments provide services to and receive services from one another.
Term
 Service Departments
Definition
 Departments such as quality control, repair and maintenance, personnel, and accounting that provide support to other departments. (Contrast with operating departments.)
Term
 Split-off Point
Definition
 Stage in the production process where products made from common inputs become separate and identifiable.
Term
 Step Method
Definition
 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
Term
 Managers must have reliable cost information to:
Definition
 Price products. Evaluate performance. Control operations. Prepare financial statements.
Term
 Allocation of indirect costs involves a two-step process:
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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