Question

Explain at least three reasons why firms would care about allocating support/service department costs and provide examples.

please provid the answers with apa style referencing

Answer 1

Allocation of cost is very important factor to be considered before fixing the price of a product or before making decision about profit margin from a single unit of product. Therefor the cost which are incurred through the production activities and periodical activities are to be separated and calculated. The periodic cost are also called as support or service cost and the calculation of product cost includes the materials,Labor,Overhead costs And Periodic cost includes the Marketing activities and Transportation activities and every other service we render for the sale of product. The three reasons why firms would care about allocating support/service department costs are mentioned Below.

1. To fix the Actual total cost of a product .

2. To make decision about how much will be the price of the product

3. To decide what will be the profit margin from single unit of product.

Example of Allocation of service cost ;-

A product Direct cost such as Material,Labor is $10/unit and Indirect costs are $5/unit. so total product cost is $15/unit. And the Management is deciding the price of product only considering the product cost then there is a chance of fall into lose ,The support or service cost which are incurred for the selling of product also should be properly allocated to the product .