Branch Assignment
Various Cost Centers:
- Production/Operational Cost Centers
- Service Cost Centers
- Administrative Cost Centers
- Sales & Marketing Cost Centers
- Distribution & Logistics Cost Centers
Cost Category
| Direct Cost | Indirect Cost | Administrative Cost | Sales Cost | Distribution Cost |
|---|---|---|---|---|
| Raw materials | Production | Office expenses | Advertising & promotions | Rent & Warehousing |
| Direct labor costs | Factory Overheads | Salaries & wages | Sales commissions | Inventory handling |
| Equipment Depreciation | Compliance costs | Trade shows & sponsorships | Fuel & vehicle maintenance |
Cost Allocation Process for Production Costs
Efficient cost allocation is essential for tracking Factory Overheads, Equipment Depreciation, Utilities, and Repair & Maintenance in production.
Step-by-Step Cost Allocation Process
- Identify Total Costs for Each Category & COA
| Cost Category | Total Cost |
|---|---|
| Factory Overheads | $50,000/month |
| Equipment Depreciation | $20,000/month |
| Utilities (Electricity, Gas, Water) | $30,000/month |
| Repair & Maintenance | $15,000/month |
- Determine Allocation Bases
| Cost Category | Allocation Basis | Example Calculation |
|---|---|---|
| Factory Overheads | Production Volume | Overhead Rate = $50,000 ÷ 10,000 tons = $5 per ton |
| Equipment Depreciation | Machine Hours | Depreciation Rate = $20,000 ÷ 10,000 hours = $2 per machine hour |
| Utilities | Usage (kWh) | Allocate based on machine usage (e.g., Machine X: $10,800) |
| Repair & Maintenance | Historical Repair Costs | Allocate based on past maintenance costs per machine (e.g., Machine X: $4,500) |
Sales
- Identify Total Sales Costs
| Sales Cost Category | Total Cost |
|---|---|
| Advertising & Promotions | $50,000 |
| Sales Commissions (Direct) | $30,000 |
| Sales Commissions (Indirect) | $20,000 |
| Trade Shows & Sponsorships | $15,000 |
| Customer Acquisition Costs | $25,000 |
| Total Sales Costs | $140,000 |
- Choose Allocation Bases
| Sales Cost Category | Allocation Basis | Basis Details |
|---|---|---|
| Advertising & Promotions | Sales Revenue | Allocate based on sales revenue generated by each department. |
| Sales Commissions (Direct) | Sales Volume | Allocate based on sales volume or revenue generated by sales reps. |
| Sales Commissions (Indirect) | Headcount or Sales Revenue | Allocate based on indirect commissions. |
| Trade Shows & Sponsorships | Sales Volume or Product Focus | Allocate based on sales volume or products promoted. |
| Customer Acquisition Costs | New Customers or Revenue | Allocate based on new customers acquired. |
- Calculate Allocations Based on Chosen Basis
| Sales Cost Category | Dept A Allocation | Dept B Allocation | Dept C Allocation |
|---|---|---|---|
| Advertising & Promotions | $12,500 | $20,000 | $17,500 |
| Sales Commissions (Direct) | $7,500 | $11,250 | $11,250 |
| Sales Commissions (Indirect) | $5,000 | $8,000 | $7,000 |
| Trade Shows & Sponsorships | $3,750 | $6,000 | $5,250 |
| Customer Acquisition Costs | $6,250 | $9,375 | $9,375 |
- Final Summary of Allocated Sales Costs
| Department | Advertising & Promotions | Direct Sales Commissions | Indirect Sales Commissions | Trade Shows & Sponsorships | Customer Acquisition Costs | Total Sales Costs |
|---|---|---|---|---|---|---|
| Dept A | $12,500 | $7,500 | $5,000 | $3,750 | $6,250 | $35,000 |
| Dept B | $20,000 | $11,250 | $8,000 | $6,000 | $9,375 | $54,625 |
| Dept C | $17,500 | $11,250 | $7,000 | $5,250 | $9,375 | $50,375 |
Distribution
- Identify Total Distribution Costs
| Distribution Cost Category | Total Cost |
|---|---|
| Rent & Warehousing | $40,000 |
| Inventory Handling | $25,000 |
| Fuel & Vehicle Maintenance | $15,000 |
| Third-Party Logistics Fees | $20,000 |
| Total Distribution Costs | $100,000 |
- Choose Allocation Bases
| Distribution Cost Category | Allocation Basis | Basis Details |
|---|---|---|
| Rent & Warehousing | Warehouse Space | Allocate based on space occupied in the warehouse. |
| Inventory Handling | Units Handled | Allocate based on units handled by each department. |
| Fuel & Vehicle Maintenance | Distribution Volume | Allocate based on miles or volume traveled. |
| Third-Party Logistics Fees | Units Shipped | Allocate based on the volume of goods shipped. |
- Calculate Allocations Based on Chosen Basis
| Distribution Cost Category | Dept A Allocation | Dept B Allocation | Dept C Allocation |
|---|---|---|---|
| Rent & Warehousing | $10,000 | $15,000 | $15,000 |
| Inventory Handling | $6,250 | $9,375 | $9,375 |
| Fuel & Vehicle Maintenance | $3,750 | $5,625 | $5,625 |
| Third-Party Logistics Fees | $5,000 | $7,500 | $7,500 |
- Final Summary of Allocated Distribution Costs
| Department | Rent & Warehousing | Inventory Handling | Fuel & Vehicle Maintenance | Third-Party Logistics Fees | Total Distribution Costs |
|---|---|---|---|---|---|
| Dept A | $10,000 | $6,250 | $3,750 | $5,000 | $25,000 |
| Dept B | $15,000 | $9,375 | $5,625 | $7,500 | $37,500 |
| Dept C | $15,000 | $9,375 | $5,625 | $7,500 | $37,500 |