Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 15

Single versus Dual Rates

Required

Refer to data for Packages-2-Go in Exercise 12-21.

Determine the cost allocation if $5.2 million of the communications network costs are fixed and allocated on the basis of time on network, and the remaining costs, which are variable, are allocated on the basis of the number of calls.

Step 1 of 4

Cost allocation:

• Allocation of costs to the respective cost objects is known as cost allocation.

• Allocation depends upon the respective cost centres that consume the products and services.

An effective cost allocation methodology enables an organization to know the costs incurred, to allocate ands to manage cost recovery.