Direct Method Illustration (3)
Posted on August 31, 2009 - Filed Under Finance | 1 Comment
Two of the support departments, Administration and Personnel, also use a fairly rough cost driver, salary dollars of the patient services departments, instead of a more precise one. For example, if Radiology has payroll costs that are five times larger than those of Laboratory, Radiology will be charged (allocated) five times as much of the […]
Read More..>>Direct Method Illustration (2)
Posted on August 28, 2009 - Filed Under Finance | 1 Comment
The most important step in the allocation process is to identity the best cost drivers for each category of overhead costs (each cost pool). Table 6.3 provides a summary of the support departments and their assigned cost drivers. Unfortunately, the selection of cost drivers is not an easy process and,
to a large extent, the usefulness […]
STOP SPENDING TOO MUCH ON EYEGLASSES
Posted on August 26, 2009 - Filed Under Finance | Leave a Comment
People use eyeglasses for many reasons. Some of them use it because they suffer from sight problem but many of them use it to cover their eyes from the sun. Every year there is always new trend of eyeglasses fashion. Since eyeglasses are also part of fashion, it can be one of high expenses product. […]
Read More..>>Direct Method Illustration
Posted on August 25, 2009 - Filed Under Finance | 1 Comment
The best way to gain a more in-depth understanding of cost allocation basics is to work through several allocation illustrations. We will begin with the direct method. As shown in Table 6.2, Kensington Hospital has three revenueproducing patient services departments, or revenue centers : Routine Care, Laboratory, and Radiology. Hospital costs are divided into those […]
Read More..>>Cost Allocation Methods (2)
Posted on August 22, 2009 - Filed Under Finance | 1 Comment
The step-down method, which is shown in the lower section of Figure 6.1, represents a compromise between the simplicity of the direct method and the complexity of the reciprocal method. It recognizes some of the intrasupport department effects that the direct method ignores, but it does not recognize the full range of interdependencies as does […]
Read More..>>Cost Allocation Methods
Posted on August 19, 2009 - Filed Under Finance | 1 Comment
Mechanically, cost allocation can be accomplished in a variety of ways, and the method used is somewhat discretionary. No matter what method is chosen, all support department costs eventually must be allocated to the departments (primarily, patient services departments) that create the need for the overhead costs.
Read More..>>The Allocation Process
Posted on August 16, 2009 - Filed Under Finance | 1 Comment
The steps involved in allocating overhead costs are summarized in Table 6.1, which illustrates how Prairie View Clinic allocated its housekeeping costs for 2005.1 First, the cost pool must be established. In this case, the clinic is allocating housekeeping costs, so the cost pool is the projected total costs of the Housekeeping department, $100,000.
Read More..>>Cost Drivers (2)
Posted on August 13, 2009 - Filed Under Finance | 1 Comment
Good cost drivers exhibit two characteristics. First, and perhaps the less important of the two, is fairness—that is, do the cost drivers chosen result in an allocation that is fair to the patient services departments? The second, and perhaps more important, characteristic is cost control—that is, do the cost drivers chosen create incentives for departments […]
Read More..>>Cost Drivers
Posted on August 10, 2009 - Filed Under Finance | 2 Comments
Perhaps the most important step in the cost allocation process is the identification of proper cost drivers. Traditionally, overhead costs were aggregated across all support departments and then divided by a rough measure of organizational output, resulting in an allocation rate of some dollar amount of generic overhead per unit of output. For example, the […]
Read More..>>Cost Allocation Basics
Posted on August 7, 2009 - Filed Under Finance | 1 Comment
To assign costs from one activity to another, two important elements must be identified: a cost pool and a cost driver. A cost pool is a grouping of costs that must be allocated, while a cost driver is the criterion upon which the allocation is made. To illustrate, a hospital may allocate housekeeping costs to […]
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