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Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Cost Allocation with Cost Flow Diagram
Coastal Computer operates two retail outlets in Oakview, one on Main Street and the other in Lakeland Mall. The stores share the use of a central accounting department. The cost of the accounting department for last year was $180,000. Following are the operating results for the two stores for the year.
| ?Main Street | ?Lakeland Mall |
Revenues | $1,000,000 | $2,000,000 |
Number of computers sold | 2,000 | 1,600 |
Required
a. Allocate the cost of the central accounting department to the two stores based on:
(1) Number of computers sold.
(2) Store revenue.
b. Draw a cost flow diagram to illustrate your answer to requirement (a), part (2).
Verified
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Cost allocation
Cost allocation refers to allocating the total costs incurred to either product or division. Cost allocation is undertaken to estimate the product cost or costs incurred by division. If cost is not allocated then it would be assumed that the cost incurred by product is zero which may not be correct.
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