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Reasons for Cost Allocation
1. To provide comparison along with externally provided services: It helps in assessing where to continue the contact or service outsiders.
2. To facilitate ideas on the efficiency of service departments: It assists to determine where a service department is operating efficiently and its size is optimal.
3. To discourage unnecessary service via some managers like they identify they'll be charged.
4. To facilitate opportunity for cost price-quality tradeoffs: Cost allocation assists to remove friction among departments. Since a user department such demands higher quality recognizes that it will contain to bear higher costs.
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Assume that a primary care physician practice performs only physical examinations. However, there are three levels of examinations I, II, III - that vary in depth and complexity.
to determine product cost:
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Capital Expenditure Budget This represents the expenditure on all fixed assets throughout the budget period. Addition intended to profit future accounting periods, or expend
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