To assign costs to a product, department, customer, etc. on an arbitrary basis. For example, the heating cost might be allocated to the five departments located in the area that is heated. The allocation is often based...
To assign costs to a product, department, customer, etc. on an arbitrary basis. For example, the heating cost might be allocated to the five departments located in the area that is heated. The allocation is often based...
Why is it necessary to allocate a lump sum payment to individual items? Author: Harold Averkamp, CPA, MBA It is necessary to allocate a lump sum payment to individual items in order to record a fair portion of the lump...
Costs that have been divided up and assigned to periods, departments, products, etc. In depreciation it is the asset’s cost that is assigned to each of the years that the asset is in use. In cost accounting it is...
The assigning or dividing up of amounts. For example, depreciation is an allocation process because it assigns an asset’s cost to expense in each of the years the asset is expected to be used. There is also an...
of $220,000. However, we can use the appraisal amounts as a logical way to divide up the cost of $220,000 between land and building. Here is one approach: Assign or allocate $44,000 to the account Land. This is 20% of...
Income tax allocations arising from differences between income tax rules and generally accepted accounting rules. For example, depreciation for income tax purposes is based on the income tax code and may require that...
The allocation of one year’s income tax expense to the various sections of the income statement. For example, extraordinary items must be reported after income tax on the income statement, while operating revenues...
In activity-based costing this refers to the allocation of the cost of activities (determined by stage 1 allocations) to the cost objects such as products or services.
What is cost allocation? Author: Harold Averkamp, CPA, MBA Definition of Cost Allocation Cost allocation is the assigning of a cost to several cost objects such as products or departments. The cost allocation is needed...
An allocation of indirect costs based on the units of production, the number of machine hours, the number of labor hours, etc.
In activity-based costing this refers to the allocation of costs to activities. For example, allocating the costs of setting up the manufacturing equipment to run a batch of product to the activity “setup...
A method used in allocating the costs of manufacturing service departments (factory administration, maintenance, etc.) directly to the producing departments in the factory. Under this method, no service department cost...
Our Explanation of Nonmanufacturing Overhead provides examples of a manufacturer's expenses which are not considered to be costs of a product for financial reporting. However, they are operating expenses that will have...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
the manufacturing and administrative costs. To avoid the death spiral, some companies attempt to allocate overhead costs based on activities and product complexities rather than simply spreading them on production...
when its products and customers are __________ diverse. Less Wrong. The more diversity of products and customers the more likely that additional factors will be needed to properly allocate costs. More Right! The more...
In cost accounting this term means to allocate, apply, apportion, or spread manufacturing overhead costs to the production output. In terms of accounts receivable, assign means to pledge accounts receivable to a lender...
The allocation of common costs based on the sales value of the products that emerge. For example, a company develops a large parcel of land at a cost of $5 million dollars. Individual lots will be sold for $100,000 to...
What is the meaning of systematic and rational allocation? Author: Harold Averkamp, CPA, MBA Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of...
, the company may choose to allocate the manufacturing overhead for internal pricing decisions or to comply with a government contract.) Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to...
, special handling, additional storage, and so on. To allocate these special costs to all products on the basis of the number of production machine hours (instead of allocating those costs based on their root causes)...
be allocated to the cost of products manufactured in order to properly value inventories on a manufacturer's balance sheet. True Wrong. SG&A and interest expenses are not allocated to inventories for financial...
To assign or allocate on a logical basis. For example, the materials price variance in a standard costing system is prorated to the following categories: materials inventory, work-in-process inventory, finished goods...
A technique using simultaneous equations to allocate a manufacturer’s service departments’ costs to both other service departments and to production departments.
A factory or manufacturing overhead rate used to allocate, apply, assign, or spread indirect product costs to items manufactured. Under traditional cost accounting, the burden rate might be a percentage of direct labor...
What is a plant-wide overhead rate? Author: Harold Averkamp, CPA, MBA Definition of Plant-wide Overhead Rate A plant-wide overhead rate is often a single rate per hour or a percentage of some cost that is used to...
The systematic allocation of the cost of an asset from the balance sheet to Depreciation Expense on the income statement over the useful life of the asset. (The depreciation journal entry includes a debit to Depreciation...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
What is the major weakness of the traditional method of allocating factory overhead? Author: Harold Averkamp, CPA, MBA Definition of Traditional Method Allocating Factory Overhead The traditional method of allocating...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Author: Harold Averkamp, CPA, MBA Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term...
the upcoming year. As a result, the company will apply, allocate, or assign overhead to the goods manufactured using a predetermined overhead rate of $50 ($800,000 divided by 16,000) for every production machine hour...
the general ledger accounts for its inventories and cost of goods sold contain $2 per pound for the materials and its materials purchase price variance account contains an unfavorable variance of $600,000 [1,000,000 X...
of these appraised values to allocate the cost of real estate into the cost of the land and the cost of the buildings. Example of Appraised Value Appraised values are useful because a company’s balance sheet will...
the equipment. It is an indirect cost because the company has to allocate the depreciation to the three versions of the product line that are processed in the Finishing Department. Let’s assume that the allocation is...
handlers, equipment maintenance, etc. The manufacturer has 40,000 production machine hours. Using the traditional method of cost accounting, the company will allocate or assign $50 of overhead of each machine used to...
What is a predetermined overhead rate? Author: Harold Averkamp, CPA, MBA Definition of Predetermined Overhead Rate A predetermined overhead rate is often an annual rate used to assign or allocate indirect manufacturing...
What are departmental overhead rates? Author: Harold Averkamp, CPA, MBA Definition of Departmental Overhead Rates Departmental overhead rates are used by many manufacturers to allocate (assign, apply) manufacturing...
change outside of the relevant range of activity? What is capex? What is accounting for price level changes? Are income taxes affected by accelerated depreciation? Kindly illustrate various depreciation methods. What is...
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