Managerial Accounting Chapter 6 Answers Upgrade Your Browser
Managerial Accounting Chapter 6 Answers Full Cost Information
Managerial Accounting Chapter 6 Answers Full Cost Information

Managerial Accounting Chapter 6 Answers Upgrade Your Browser

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Managerial Accounting Chapter 6 Answers Full Cost Information

One purpose of Cost Allocation is to provide full cost information.

One purpose of Cost Allocation is to provide information for decisions.

When managers use a company resource they are receiving a charge for use (Allocated cost should measure the opportunity cost of using a company resource).

Provides a useful benchmark (The closer to the opportunity cost of use, the better the allocation).

When managers are not charged for a service, they may tend to use it for nonessential purposes (Nonessential use may have hidden cost such as slower service).

Allocation provides incentive for departments to reduce nonessential use.

If costs are not allocated, there is no incentive to evaluate the services and look for lower cost alternatives.

With cost allocation, there is a strong incentive to critically evaluate the efficiency and necessity of services (Users will certainly bring lower cost alternatives to the companys attention).

Managerial Accounting Chapter 6 Answers Full Cost Information

Full cost information is needed when the company has an agreement whereby revenue received depends upon cost incurred (Also called cost-plus contracts).

One purpose of Cost Allocation is to reduce frivolous use of common resources.

One purpose of Cost Allocation is to encourage evaluation of services.