Cost allocations are an important part of Anthony's Orchards budgeting system. Anthony's Orchards is reviewing the way decision rights are partitioned throughout the company. Using Anthony's Orchards website or Optional Resources, answer the following discussion question:
Why is it important to continue to allocate costs? Would you recommend that Anthony's Orchards continue to allocate costs? Why or why not? How would you recommend allocating the purchasing department to the three cost centers? What is the basis for your decision, i.e., number of apples used, etc.?
Anthony's Orchard must allocate costs. The reason for this is that direct costs can be attributed to each cost center. On the other hand indirect costs cannot be traced easily to each cost center. When some purchasing costs can be directly attributed to a particular cost center, this must be done through the process of cost tracing. For instance, the purchase of sugar for the Apple Products department can be traced. On the other hand most of the indirect purchasing costs cannot be traced to a cost center. Because these purchases are common to each of the cost centers and cannot be traced to each cost center.
Yes, Anthony's Orchard must ...
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