Cost Allocation, General
An organization’s service and administrative costs can be substantial, and some or all of these costs usually are allocated to cost objects. Thus, the allocations of service and administrative costs can have a significant impact on product cost and pricing, asset valuation, and segment profitability.
Required
1. What are service and administrative costs?
2. When service and administrative costs are allocated, they are grouped into homogeneous pools and then allocated to cost objects according to some allocation base.
a. Compare and contrast the benefit and cost criteria for selecting an allocation base.
b. Explain what the ability-to-bear criterion means in selecting an allocation base.
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