There are two topicschoose one of them - Coursework Example

Download file to see previous pages By allocating the costs by their using departments, departmental decision making is enhanced. The marketing department cannot be held accountable for the wastage or spoilage incurred by the grinding department. The department generating high production levels is not affected by another department’s operating activities.
Applying the traditional cost alternative, the costs of all the departments are lumped into one cost account (Debarshi, 2011, p. 178). Consequently, the department producing the avoidable production wastes and spoilage can be erroneously made to explain one’s wasteful production process charge. This is because the total expenses and costs of all the departments are evenly divided among all the wasteful and not wasteful departments.
Further, allocating the costs by departments will allow the implementation of favorable cost center-based strategies. Under the strategy, each department is responsible for its own profit, expense, revenue, or other financial accounts (Kinney, 2012, p. 26). For example, the costs and operating expenses of the fast selling department are deducted from the revenues of the same fast selling branch or department. Likewise, the costs and operating expenses of the slow selling department are deducted from the revenues of the same slow selling branch or department. This way, management can determine whether each department performed financial better than the other departments.
In terms of areas where judgment may be needed, the computation of the overhead allocation includes categorizing expenses according to direct costs and indirect costs (Mittal, 2010, p. 23). For example, wood, nails, and paint are classified as direct materials of the furniture manufacturing company because wood, nails, and paint form part of the completed chair. Direct labor cost includes amount paid to the individuals directly making the product. For example, the salary payment of the carpenter making the chair is direct ...Download file to see next pagesRead More