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Allocation of common costs for ABC Company

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See file attached.

Cost Reallocation

The following link describes an organization's approach to allocation of costs. Some of the acronyms used in this report is explained in the introduction to the same report.

Required:
You are required to read the above article and to discuss the various issues of cost allocation in a 2 to 4 page paper by addressing the issues below:

1. Describe the process of allocation of costs in this organization. Do you agree with the approach? Why or why not?.
2. Identify those situations when common costs are allocated.
3. Explain the impact of allocating common costs for internal decision making.
4. Explain the impact of not allocating common costs for internal decision making.

How is the decision making in this organization affected by the manner in which costs are allocated? Provide numerical support as needed

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Solution Summary

The response addresses the queries posted in 738 Words, APA Reference

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The response addresses the queries posted in 738 Words, APA Reference

Existing CVP Plant-in-service Cost Allocation

Cost Allocation Process

The activity based costing is used in the CVP plant. This method helps in easy allocation of the costs related to products & services. Cost allocation is performed in various steps so that they are properly identified and assigned according to the policies and laws. In the first step, costs are disaggregated as required. There are various costs in the financial statements, which are to be simply allocated to non-reimbursable expenses or related to repayment or allocation which is different from the main features. For instance, the total costs in the financial reports may have the costs related to cultural and historical studies. These non-reimbursable are directly allocated to suitable non-reimbursable cost category (Chapter III: EXISTING CVP PLANT-IN-SERVICE COST ALLOCATION, 2001).

After these adjustments are performed, the cost which is remaining is the total capital investment. The investment is assigned between the approved project purposes. The cost in the single purpose entities are assigned according to the purpose served. Allocated costs are distributed for determining the repayment responsibilities. The cost allocation for multi-purpose facilities is based upon joint cost ...

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Ashish Sharma, MBA (IP)
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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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