ADMN 3121H Lecture Notes - Lecture 5: Universal Rule, Linear Equation, Fixed Cost
30 Mar 2020
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Lecture 5 chapter 14 period cost application. Cost allocation: a method to attribute or assign relevant indirect costs. Alternative used when tracing costs is not economically feasible. Benefits of facility-sustaining costs are not observable, cannot be readily measured. Goal is to allocate period costs of non-manufacturing activities proportional to the different levels of benefit provided to each of the users. No universal rule to tell accountants how to allocate either manufacturing on non-manufacturing costs. Period costs: all costs incurred to generate revenue during a specific time period except the costs of manufacturing accumulated as cost of good sold. Full product costing: prices of finished output must recover all manufacturing and period costs. Period costs must be assigned to output in ways that reflect the truth about economic activities. Task of management accountants is to select the best method of cost assignment (to each distinct output) that most accurately includes the value added.
