A number of terms are listed below:
Artificial cost pools .......... Common cost
Core operating division ......... Direct method
Dual-rate .............. Incremental cost allocation method
Sequential method .......... Stand-alone cost allocation method
Price taker ............. Reciprocal method common cost pool
Select the terms from the above list to complete the following sentences.
Target pricing is a policy well suited to a highly competitive environment where the corporation is a ___________ because customers set the price. Depending on the proportion of fixed costs in the pool, the management team must choose between a ___________ or a single-rate cost pool. Cost leadership is an appropriate policy and the ___________ most accurately reflects cost flows from support divisions back and forth among one another and to ___________. To implement the reciprocal method, the support cost pools must be arithmetically adjusted to create _________________, which are then the basis for all cost allocation.
The ___________ is an improvement over the ___________ of applying support costs, but only reports the flow of support departments to one another in one direction. The support divisions are first ranked on some basis from highest to lowest flow of either costs or resources then step down from the largest to smallest support division. Then the adjusted support cost pools are allocated to core operating divisions.
A ___________ arises when two or more users share benefits from consuming a corporate resource. There are two ways to recognize proportional cost and benefit. The ______________________ defines each cost object as if it were the only output. The ___________________________________ ranks those who share in benefits from incurring the total common cost pool from high to low. The highest ranked is the primary party who bears most of the total shared cost. The remaining incremental parties share the difference between the total common cost pool minus the costs allocated to the primary party. Disputes over the primary party often arise.