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

Exercise 17

Single versus Dual Rates

Using the data for the consulting firm in Exercise 12-23, what is the cost allocation if fixed computer costs of $4 million are allocated on the basis of number of consultants and the remaining costs (all variable) are allocated on the basis of the number of gigabytes of storage used by the department?

Step 1 of 4

Management control system

Management control system is needed to manage the complications arising out of decentralization like dysfunctional decision making. Owners of the organization use structure and procedures of management control system to influence the actions of its managers and other employees to ensure smooth implementation of organizational strategies. Management controls system comprises of three elements such as delegation for decision making authorities, evaluation of performance and measurement systems and finally awarding compensation and rewards for performance.

Cost accounting system

This is a system designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Joint cost

Joint cost is the cost of manufacturing for a production process that produces multiple products. For example, during mining process of coal there are variety of coal generated like low, medium, high grade etc. The main challenge arises when the joint cost need to apportion over the multiple products generated.