Nobody downloaded yet

Allocation of Fixed Costs - Essay Example

Comments (0) Cite this document
Summary
Allocation of Fixed Costs Allocation of Fixed Costs Process of Allocation of IT costs In recent technological environment, the use of information technology has captured a major area in all fields of life. People are adopting up to date IT techniques for maintain their business in efficient manner…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.6% of users find it useful
Allocation of Fixed Costs
Read TextPreview

Extract of sample "Allocation of Fixed Costs"

Download file to see previous pages But in recent environment where the overheads such as IT cost became a major portion in product cost. In advanced manufacturing technology overheads are likely to be more important and therefore it is difficult to justify the IT costs on the basis of absorption costing methodology. The problem arises when the company is not able to decide that on which basis the IT costs should allocate into company products. There are many different techniques can be used for allocation of IT costs. Some of them are mentioned below According to many successful financial advisors, the use of Activity Based Costing (ABC) methodology can be a best and beneficial technique for the allocation of IT costs. In addition, it is also proved by accounting practices of past few decades that activity based costing is absolutely a best technique for charging allocating the major complex overheads costs like IT costs. Activity based costing is just one method of charging IT costs because it focuses on the identification of actual IT costs and can give the true and accurate results. A simple charge back costing technique can be also a good option for allocation of IT cost but it is only feasible only at first stage and the company can face many of big inherent problems at the end of process. Why Activity Based Costing (ABC) is best technique for the allocation of IT costs ABC Vs Flat Rate: In comparison with other costing methodologies the Activity based costing technique always gives accurate results and could be a true measure of profitability. For example, Allocation of overheads on flat rate system hides the inefficiencies of the systems and causes many serious problems in long run. Using a flat rate is can be the best option to get cost transparency but sometimes it can be headache for business leaders because they started to thin k that, they are charged greater than the their use. Using flat rate system, there is a possibility of greater charges in respect with little use of service. Complexity of IT costs: On the other side of coin, other traditional approaches are not able to measure the complexity of the IT costs properly while the Activity based costing recognize the complexity with its multiple cost drivers. Realistic Approach: In modern competitive environment, companies must be able to assess profitability realistically. Activity based costing methodology facilitates a good understanding of what drives IT costs. Purpose of Allocation Simple the cost allocation is the process of charging the indirect costs in to products on the base of services they consume. It is a process of charging the portion of shared services from cost centers in to a product or service. In current technological environment, the overheads are likely to be far more important and in fact direct labour may account for as little 5% of a product cost. In advance environment many non-volume related support activities such as IT costs have captured a great part in company’s profitability that’s why the fair allocation of IT costs is more important to measure the true profitability level. Benefits of Allocation There are many benefits of allocation of IT costs. Some of them are mentioned below: Proper Accountability of resources: In current competitive trends, enterprises demand more accountability of their funds and they try to use their resources in effective manner. For this purpose, Proper allocation of IT ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Allocation of Fixed Costs Essay Example | Topics and Well Written Essays - 750 words”, n.d.)
Allocation of Fixed Costs Essay Example | Topics and Well Written Essays - 750 words. Retrieved from https://studentshare.org/business/1442370-acc403-principles-of-accounting-mod-3-allocation-of-fixed-costs
(Allocation of Fixed Costs Essay Example | Topics and Well Written Essays - 750 Words)
Allocation of Fixed Costs Essay Example | Topics and Well Written Essays - 750 Words. https://studentshare.org/business/1442370-acc403-principles-of-accounting-mod-3-allocation-of-fixed-costs.
“Allocation of Fixed Costs Essay Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/business/1442370-acc403-principles-of-accounting-mod-3-allocation-of-fixed-costs.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Allocation of Fixed Costs

Principles of Accounting SLP 3: Allocation of Fixed Costs

...? Principles of Accounting SLP 3: Allocation of Fixed Costs of the of the Principles of Accounting SLP 3: Allocation of Fixed Costs Introduction The allocation and distribution of fixed and variable costs over the various elements of an organization’s balance sheet are what cost accounting is most concerned about, it would seem. The development of cost and profit centers is based upon this concept, that each department or unit is responsible for its own revenues, costs and profit or loss. In this assignment I will concentrate on the...
3 Pages(750 words)Essay

General Electric's Allocation of Costs

...?General Electric’s Allocation Of Costs Introduction Cost allocation is the most important task in any organization, as this task ensures that all the relevant heads get the relevant budgets for a proper allocation of resources. The purpose of cost allocation is for many reasons. The costs should be allocated keeping in mind the benefits. This will help in identifying, in an organization such resources which needs cost for buying capital, managing cost for buying raw materials and inventory, costs for salaries, operational and various...
6 Pages(1500 words)Essay

Fixed and Variable Costs

...Week 3 DQ's Fixed cost is that cost that does not change significantly with the change in the level of activity. Examples of fixed cost include interest expense, salaries and expenses of the employees or executives, property taxes and insurance protection. Variable cost is that cost that cost which changes with the change in the level of activity. For example if the company is producing more aero planes then more amount of raw material will be required to make the planes (Leslie 1993). Examples of variable cost include raw material, labor cost. There are some...
2 Pages(500 words)Essay

The Allocation Problem session long project 4 (walmart) accounting

...the divisions and these common costs are used in this analysis. From the annual report of Wal-Mart, the incomes from various divisions are gathered. The administrative expenses are then allocated to each division. The allocation depends on a number of factors including the scale of operations in the division, number of stores operating in the division and the revenue generated (Wal-Mart Financial Review). The incomes from various divisions are presented below: Wal-Mart with allocation of fixed costs (in $ million) Division Revenue Operating Expenses Administrative Costs Net...
2 Pages(500 words)Essay

Variable and Fixed Costs

...Variable and Fixed Costs Part I Financial accounting mainly focuses on financial ments that distributed to financial analysis, lenders, stakeholders and others that are outside the company. On the other hand, financial accounting courses covers general principles of accounting that are generally acceptable. These are principles that must be followed in reporting a corporations’ past transaction results on its income statement, balance sheet, cash flows’ statement, and statements showing changes in the equity of shareholders. On the other hand, managerial accounting focuses on providing information that is essential and is found within the company so that the management of the company can use that information to effectively operate... ...
2 Pages(500 words)Admission/Application Essay

Allocation of Fixed Costs

...Allocation of Fixed Costs Part I: Activity based management and activity based costing (ABC) benefits in an organization The main differentiation point that makes ABC unique from other allocation methods is its focus on minimization of waste and idle capacity in the production processes. Activities within the production process to which indirect costs can directly be attributed to production are identified for estimations and allocation. The entire activity costing enables the management to single out cost element on each product using activity costing product...
2 Pages(500 words)Admission/Application Essay

Variable and Fixed Costs

...Contribution Margin Income ment Following is the contribution income ment of Herrested Company for the year ending December 31, In this income statement, all the variable costs are first deducted from total sales to get a contribution margin figure. After that, all the fixed expenses are then deducted from contribution margin figure to reach at the net income figure. In year 2011, Herrested Company earned contribution margin of $60 per unit or $480,000 in total with the net income of $180,000. Herrested Company Contribution Margin Income Statement For the period ending December 31, 2011           per unit No. of units sold Total Sales 250 8,000 2,000,000 Variable Cost   Direct...
2 Pages(500 words)Essay

Variable and Fixed Costs

...Running head: VARIABLE AND FIXED COSTS Variable and Fixed Costs (Course Name) 29th November 2012 Variable and Fixed Costs Absorption income statement entails the use of all costs by a manufacturing concern to produce the products. This implies that the prices of every unit produced by a firm include direct materials, direct labor, as well fixed and variable overheads. Key examples of costs that are covered under the absorption income statement include wages to salaries, overheads costs and the raw materials used in the production facility. On the other hand, variable...
2 Pages(500 words)Essay

Allocating Fixed Costs

...Finance & Accounting Finance & Accounting Part I Costing systems help in ascertaining the cost of product with reference to the revenue that it generates. Usually there are two costing systems that are used to determine the product cost – Traditional costing and Activity based costing. Traditional costing system witnesses companies allocating their production costs only on the basis of the quantity of the production. The basic assumption is that volume of the goods produced is the only driver of the manufacturing costs. Contrastingly, Under the Activity based...
3 Pages(750 words)Essay

Allocation of Costs

...May 25, Allocation of_Costs A: Activity_based costing Table shows (appendix section) the allocation of the maintenance_department labor_cost using the activity_based cost (Epstein, 2011). By multiplying the labor_hours by the labor_cost per_hour, the total labor_cost is generated. For the maintenance aspect, the total labor_cost is $120,000. For the repair activities, the total labor_cost is $72,000. The total labor_cost of the entire company is $192,000.00. Allocation of Maintenance Supplies Cost Table 2 (appendix section) shows the financial allocation of the maintenance_department’s supply cost_allocation. The...
1 Pages(250 words)Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Allocation of Fixed Costs for FREE!

Contact Us