Cost allocation and cost pools

Cost allocation and cost pools

Description/Paper Instructions

Cost allocation and cost pools

What is cost allocation?

Cost allocation is the process of assigning costs to cost objects. A cost object is anything that incurs costs, such as a product, service, department, or activity. Cost allocation is used to track costs and to determine the profitability of different cost objects.

There are two main types of cost allocation: direct allocation and indirect allocation. Direct allocation is the process of assigning costs that can be traced directly to a cost object. For example, the cost of materials used to produce a product can be directly allocated to that product. Indirect allocation is the process of assigning costs that cannot be traced directly to a cost object. For example, the cost of the company’s headquarters cannot be directly allocated to any one product.

What is a cost pool?

A cost pool is a group of individual costs that are allocated together. Cost pools are often used to simplify the cost allocation process. For example, the cost of the maintenance department might be grouped into a single cost pool. This would make it easier to allocate the cost of the maintenance department to the different products or services that use its services.

How are cost pools created?

Cost pools are created by grouping together costs that have a common cause. For example, the cost of the maintenance department might be grouped into a single cost pool because all of these costs are incurred as a result of the maintenance department’s activities.

How are costs allocated to cost pools?

There are two main methods for allocating costs to cost pools:

Rational allocation: This method allocates costs based on a rational basis. For example, the cost of the maintenance department might be allocated to the different products or services that use its services based on the amount of maintenance each product or service requires.

Arbitrary allocation: This method allocates costs based on an arbitrary basis. For example, the cost of the maintenance department might be allocated to the different products or services that use its services based on a predetermined percentage.

Which method of cost allocation is best?

The best method of cost allocation depends on the specific circumstances. In general, rational allocation is the preferred method because it is more accurate. However, arbitrary allocation may be necessary if it is not possible to determine a rational basis for allocating costs.

What are the benefits of cost allocation?

There are several benefits to cost allocation:

It helps to track costs and to determine the profitability of different cost objects.

It can help to identify areas where costs can be reduced.

It can help to allocate resources more effectively.

What are the limitations of cost allocation?

There are also some limitations to cost allocation:

It can be difficult to determine the appropriate basis for allocating costs.

It can be subjective and arbitrary.

It can distort the true costs of products or services.

Conclusion

Cost allocation is a complex process, but it is an important tool for businesses. By understanding the different types of cost allocation and the benefits and limitations of each, businesses can use cost allocation to improve their decision-making and to achieve their financial goals.

In addition to the above, here are some additional things to keep in mind about cost allocation and cost pools:

Cost allocation should be done in a consistent manner over time. This will help to ensure that the results of the cost allocation process are accurate and reliable.

The costs that are allocated to a cost object should be relevant to that cost object. This will help to ensure that the cost allocation process is fair and accurate.

The cost allocation process should be transparent. This will help to ensure that all stakeholders understand how costs are being allocated and why.

By following these guidelines, businesses can ensure that they are using cost allocation in a way that is beneficial to their organization.

Cost allocation and cost pools

RUBRIC QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points:  Student failed to submit the final paper. 20 points out of 50:  The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50:  The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately.  Elements of the required response may also be lacking. 40 points out of 50:  The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples.  The answer is complete. 50 points:  The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples.  No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points:  Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points:  Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points:  References to scholarly sources are occasionally given; many statements seem unsubstantiated.  Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points:  Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented.  APA 6th Edition is used with only a few minor errors.  There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points:  Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented.  APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points:  Student failed to submit the final paper. 5 points out of 20:  The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors  10 points out 20:  The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20:  The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points:  The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points:  Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements.  The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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