Principles of Accounting SLP 3: Allocation of Fixed Costs - Essay Example

Comments (0) Cite this document
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…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.5% of users find it useful
Principles of Accounting SLP 3: Allocation of Fixed Costs
Read TextPreview

Extract of sample "Principles of Accounting SLP 3: Allocation of Fixed Costs"

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 treatment of allocated costs at Apple Inc., my chosen SLP organization. Treatment of Allocated Costs at Apple, Inc. One of the most commonly repeated precepts of cost accounting is that costs and expenses must be allocated to the departments or units where they are consumed. Usually a rational basis for the allocation, such as floor space consumed, units produced, hours worked etc. are used. It depends on the industry and the nature of the cost being allocated. When fixed costs are allocated to a batch or a number or units, they spread the cost over all the units equally and as a result the fixed cost per unit is minimized. On the other hand, variable costs usually remain constant per unit depending on a specific range of volumes. This is all part of cost-volume-profit analysis (Williams et al, 2011; Atkinson et al, 2000). Taking a look at Apple’s Consolidated Income Statement for the period ended September 24, 2011 we can see the following items (Apple Inc. Website, 2012). Net Sales $108.249 billion Cost of Sales $ 64.431billion Gross Margin $ 43.818 billion Operating Expenses: Research & Development Expenses $ 2.429 billion Selling, General & Administrative Expenses $ 7.599 billion Total Operating Expenses $10.028 billion Operating Income $33.790 billion Recasting a Report with Allocated Costs If these costs were allocated on a regional basis, say to America, Europe, Japan and Asia-Pacific respectively (based upon sales percentages of 35.4 percent, 25.66 percent, 6.02 percent and 20.87 percent- these adding up to 87.95 percent with the rest classified as Retail Sales), we would end up with the following allocated costs: Item America Europe Japan Asia-Pacific R & D Expenses $ 859.87m 623.28m 146.23m 506.93m Selling, Gen & Admin Expenses $2690.05m 1949.90m 457.46m 1585.91m Comments on this Report The report with the allocated costs, albeit on the basis of sales percentages, gives added meaning to the overall figures and shows the makeup of Apple’s net sales and operating expenses on a more realistic basis. This can lead to further insights on where to better market Apple’s products, what sort of promotion, sales and advertising efforts are likely to bring better results, what segments of the desired regional market to target and how- so on and so forth (Heitger & Matulich, 1985). It will also dictate whether a cost pull or demand push strategy would be more effective in a given region, based upon previous results and feedback. The allocated figures would thus form a basis for all these decisions (Khan & Jain, 2006). Although the figures for actual operational results have been reported separately on a regional basis in Apple’s consolidated 10-K statement for 2011, doing this exercise was a useful way of estimating the way to allocate common costs and expenses such as R&D and other general, selling and administrative expenses in large corporations such as this one (Besley & Brigham, 2000). In fact making forecasts of sales and expenses based upon a given sales growth rate is a common practice with financial analysts and corporate finance managers. They could use this in what-if scenarios and decide what would be the most likely outcome given industry and firm conditions and if they would be meeting their financial targets that way (Horngren et al, 2011). Competitor actions and other changes in the legal, political and economic landscape can also have an impact on actual results and bring about changes in expectations and future plans Read More
Cite this document
  • APA
  • MLA
(“Principles of Accounting SLP 3: Allocation of Fixed Costs Essay”, n.d.)
Principles of Accounting SLP 3: Allocation of Fixed Costs Essay. Retrieved from
(Principles of Accounting SLP 3: Allocation of Fixed Costs Essay)
Principles of Accounting SLP 3: Allocation of Fixed Costs Essay.
“Principles of Accounting SLP 3: Allocation of Fixed Costs Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Principles of Accounting SLP 3: Allocation of Fixed Costs

Allocation of Fixed Costs

...? 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. All small, medium and large companies run their business function with the help of information technology rather than using traditional techniques. From the perspective of cost accounting, all the indirect costs and overheads were absorbed in direct costs using absorption costing methodology in traditional costing system. But in recent environment where the overheads such as IT cost became a major portion in product cost. In advanced... ...
3 Pages(750 words)Essay

ACC403, Principles of Accounting SLP 3

...month period and some of the projected costs for next 12-15 months. Inputs, results and implications The management team from MS considered several of following costs: Non-relevant Costs: Cost of developing MS IE 7.0 – USD 2,380,000.00 Legal Costs USD 1,850,000.00 Cost of Developing XP 2003 which packaged MS IE 5, 6 & 7 – USD 8,900,000.00 Cost of developing a SP 19.815 for XP 2003 – USD 385,000.00 Relevant costs: Cost of market research for MS IE 8.0 – USD 3,100,000.00 Cost of developing MS IE 8.0 – USD 3,300,000.00 Bibliography 1. ICFAI Center for Management Research...
2 Pages(500 words)Essay

Principles of Accounting SLP

...and consumer demand are in a slump Question # 3 An in-depth analysis of the ratios of the financial statements can be used to detect the fraudulent activities of the company. A change in ratio over a period of time or over one year should be rational and logical that can be explained properly. Any unusual ratio jump or fluctuations or extreme deviations from the industry average that cannot be explained rationally need to be investigated. This is how the analysis of ratios can be used as a method of fraud detection. (Harrington, 2005) Gross Margin Index is one example of the fraud analysis ratio to analyze the financial statement over a period of time. (Harrington, 2005) Gross Margin Index = {(sales prior year minus...
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... and the...
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

...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,...
3 Pages(750 words)Essay

CASE 3- Variable and Fixed Costs

...the entire fixed costs for the period are charged in the profit and loss statement. (Drury, 2004) 3. If the sales during the period exceed the production, then variable costing system results in higher profits. As a higher amount of fixed overheads allocated to the opening inventories, under the absorption costing will become the part of current period’s cost. However, in the variable costing approach, actual fixed overheads for the current period will be taken as an expense only. (Drury, 2004) Both absorption and variable costing methods have their own...
3 Pages(750 words)Essay

Variable and Fixed Costs slp

...480,000 Fixed costs Selling and administrative 100,000 100,000 Net income 380,000 The net income from the absorption income statement is less than the net income in the contribution statement of income. The reason is because the contribution format excludes the fixed manufacturing overheads (Warren, 2008). However, most of the sales income is the same and the diversities that occur are due to the differences in...
3 Pages(750 words)Assignment

Allocation of Costs using the formula: (200/80,000) x $100,000. The other departments’ share of the $100,000 maintenance supply_costs is: $ 79,800/80,000) x $ 100,000 (Finkler et al., 2013). Allocation of Maintenance Administration Cost Table 3 (Appendix section) shows the allocation of the maintenance_department administration_costs (Finkler et al., 2013). The costs are allocated using the volume of repairs output of Pharmacy department_and resources. The pharmacy department formula is: (3/800)x$15,000. The formula for the other departments’ share of the maintenance_department’s administration_costs was generated using the formula:...
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 Principles of Accounting SLP 3: Allocation of Fixed Costs for FREE!

Contact Us