Describe why the allocation of indirect costs is such a critical topic in cost accounting. Be...

Describe why the allocation of indirect costs is such a critical topic in cost accounting. Be specific and provide a comprehensive answer (do not describe the methods). Provide reasons for cost allocation.

Expert Solution

Allocation of indirect costs is such a critical topic in cost accounting because indirect costs are such costs which are not directly allocated to the products.
These costs cannot be charged to products at any specific rate. These can be either fixed or variable.
Indirect costs are not directly related to production.

So, due to the above mentioned reasons indirect costs becomes such a critical topic in cost accounting as the cost allocations of indirect costs is not easy.

There are various reasons for cost allocation. These are as follows :

It helps in determining the actual costs of the products.
Proper accounting and management of the income statement can be done.
Helps in various decision makings like whether to accept or reject a special order.
Helps in evaluation of various departments and their employees.
Helps in budgeting process.

ekkarill92 answered 2 years ago

42. Monthly indirect production costs are $500,000. The cost-allocation base for indirect costs is machine hours....

42. Monthly indirect production costs are $500,000. The cost-allocation base for indirect costs is machine hours. The budgeted capacity for the month is 100,000 machine hours. Product X used 15,000 machine hours, Product Y used 20,000 machine hours and Product Z used 25,000 machine hours. How much of the indirect costs are allocated to Products Y and Z? Product Y Product Z A) $2,500 $7,500 B) $100,000 $125,000 C) $150,000 $175,000 D) none of the above 43. Depreciation Expense...

In 200 words or more, describe an example of indirect cost allocation in the manufacturing industry....

In 200 words or more, describe an example of indirect cost allocation in the manufacturing industry. Provide at least two examples of chosen topic using specific information.

Direct or allocation of indirect costs to cost pools Using volume based cost drivers. Use diagrams...

Direct or allocation of indirect costs to cost pools Using volume based cost drivers. Use diagrams and schedules wherever necessary and provide examples. The Royal Botanical Gardens has been established for more than 120 years and has the following mission statement: "The Royal Botanical Gardens belongs to the nation. Our mission is to increase knowledge and appreciation of plants, their importance and their conservation, by managing and displaying living and preserved collections and through botanical and horticultural research." Located towards...

Activity Indirect Cost Allocation Base Allocation base by Ale Allocation base by nonAle Allocation base by...

Activity Indirect Cost Allocation Base Allocation base by Ale Allocation base by nonAle Allocation base by total Brewing $5000 Direct Labor 65hours 25 hours 90 hours Bottling $11000 Machine hours 80hours 30 hours 110 hours Inspecting $4000 Bottles 8000 bottles 2000 bottles 10000bottles Other pertinent information: 1.Cost for ingredients and bottles for Ale is $0.35 per bottle 2.Cost for ingredients and bottles for NonAle is $0.25 per bottle. 3. The labor costs to make a bottle of beer is the...

Is possible for financial officers to create an adequate allocation base budget for indirect costs?

describe allocation of joint costs across products

In the manufacturing sector, if the indirect cost amount is large enough, an incorrect allocation base...

In the manufacturing sector, if the indirect cost amount is large enough, an incorrect allocation base could have serious repercussions. What might be some examples of the effects of an incorrect allocation? How might that affect a company’s profitability and decision-making?

Why are accounting periods an interesting topic?

Please write a short report (not more than 200 words) concerning the allocation of indirect costs...

Please write a short report (not more than 200 words) concerning the allocation of indirect costs using plantwide, department, and ABC rates. The report should focus on the following: The nature of eachadvantages and disadvantages. The question is on the site. I want an answer that differs from the previous question Thank you ِ Abdul-rahim Taysir

Describe and record the flow of materials costs in job order cost accounting?

Question