Question: Because not all costs can be traced directly to a cost object, allocating costs is a fundamental task in accounting. For example, manufacturing overhead
Because not all costs can be traced directly to a cost object, allocating costs is a fundamental task in accounting. For example, manufacturing overhead is allocated to products, support department costs are allocated to production departments, joint costs are allocated to joint products, etc. There are many reasons companies must be careful making decisions (such as evaluating managers, deciding what products to discontinue, etc.) when significant allocated costs are involved. Describe one reason that companies must be careful making decisions when significant allocated costs are involved
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Allocation of costs refers to the allocation of a single cost over several companies organizational units or cost units Cost distribution is a crucial strategy for decreasing expenses and boosting earnings It may also be a cost incentive providing managers with an incentive to ensure that expenses are not recklessly accumulated It will be more probable that administrators will handle their divisions more effectively One of the primary functions of cost allocation is to give decisionmaking data For both short and longterm decisionmaking it is crucial to understand which department or commodity is consuming a larger share of the budget Proper cost allocation enables the firm to recognize and comprehend the expenses at each step as well as their influence on loss profits and losses profit Alternatively if the allocation is inaccurate the organization ... View full answer
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