Principles of Cost Accounting
17th Edition
ISBN: 9781305087408
Author: Edward J. Vanderbeck, Maria R. Mitchell
Publisher: Cengage Learning
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Cost allocation bases are ideally based on a cause and effect basis. That is not always easy when allocating fixed costs. Why might this be so?
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Step 1: Define the term Cost allocation:
Cost allocation is the process of assigning or distributing a company's indirect costs to various cost objects or cost centers within the organization. The goal of cost allocation is to attribute shared or common costs to specific activities, products, projects, or departments in a systematic and equitable manner.
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- Explain how the high-low method is used for cost estimation. What, if any, are the limitations of this approach to cost estimation?arrow_forwardWhat is the scattergraph method, and why is it used? Why is a scattergraph a good first step in separating mixed costs into their fixed and variable components?arrow_forwardWhy is a scattergraph a good first step in separating mixed costs into their fixed and variable components?arrow_forward
- List the acceptable cost flow assumptions under IFRS. Be sure to explain the reasoning as to why IFRS find certain cost flow assumptions unacceptable.arrow_forwardWhich statement is correct? A. Activity-based cost systems are less costly than traditional cost systems. B. Activity-based cost systems are easier to implement than traditional cost systems. C. Activity-based cost systems are more accurate than traditional cost systems. D. Activity-based cost systems provide the same data as traditional cost systems.arrow_forwardWhy can unitized fixed costs cause errors in decision making?arrow_forward
- Demonstrate why expressing fixed costs on a per unit of activity basis is misleading and may result in faulty decisions.arrow_forwardWhy is it necessary to distinguish between variable and fixed costs when dealing with mixed costs?arrow_forwardHow is uniform cost search different from plain BFS?arrow_forward
- Consider the following statements concerning costs. 1. A committed cost cannot vary with the decision. 2. An outlay cost cannot vary with the decision. Are the above statements true or false?arrow_forwardDo you agree from the following statements- Explain in details with examples 1.Variable costs are controllable but fixed costs are not. 1.Sunk costs are irrelevant cost while making any decision.arrow_forwardThe simplifying assumption that costs and volume vary in straight-line relationships makes the analysis of cost behav-ior much easier. What factors make this a reasonable and useful assumption in many cases?arrow_forward
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