What are the different types of cost allocation systems?
Cost allocation systems are part of managerial accounting that focus on the application of production costs for produced goods. There are many types of systems for this process, although many changes come from several basic settings. Several common cost allocation systems include absorbent costs, variable costs and allocation based on activities. Companies often choose the best allocation system based on their production environment, such as ordering or processing. Each cost method has its advantages and disadvantages from the accounting point of view. Cost allocation is often an internal managerial accounting process, and information is not obtained for public issues. This method excludes all variables and fixed general, sales and administrative costs that do not affect the direct production of goods. In accounting, these costs fall under the analcraft for the period. Period expenses go directly to the profit and loss statement and reduce net income for a given month.
The allocation of variable costs are similar to the absorption method because they exclude GSA costs that do not affect the direct production of goods. However, the main difference is the exclusion of fixed production costs together with the cost of GSA. Removal of fixed production costs reduces production costs allocated to each product. The result is lower costs of goods sold and higher gross profit. Many national standard records disagree with this method because they create a distorted profit and loss statement and incorrect costs of produced goods.
activities based on activities is slightly different from these other two methods. These cost allocation systems are looking for activities that affect the production process. Each activity should have a ST Cořidič, such as working or machine clocks. Within this method, the accounting associates all costs associated with production activities. Cost driver helps the companyEM to determine the cost of the unit and assign the results accordingly.
Cost allocation systems are often under intensive control of managerial accountants. Companies must ensure that the cost system correctly processes all production costs and meets any standard accounting principles that control the financial accounting. The inability to properly manage these costs can lead to serious problems, from lack of profits to poor audit results to unsuccessful accounting systems. Accountants can often change or adapt as needed to create the most profitable and accurate system that will remain in business and competitively.