Cost Allocations & Activity-Based Costing (ABC)
Cost Allocations & Activity Based Costing (ABC)
Abstract
The cost allocation is a process of assigning costs to different activities. There is several methodology of cost allocation. The cost driver allocates costs into different activities and locations. Health organizations use different allocation methods according to their needs to attain organization and profitability. The purpose of allocation is to make the understanding of costs easier rather than rating the products and services. Another purpose is to compute and analyze asset evaluation. The allocation of cost to service department helps attribute and facilitate costs. There are three types of cost allocation …show more content…
Other costs might not be the major direct costs which are not important enough for justifying their allocations individually. All costs in a given pool should have the same cost driver, so each cost driver allocations have several costs (Toktay, 2011).
Purpose of Allocation
Health care managers within an organizational unit should be aware of their decisions, even consequences outside of their unit. Costs are allocated for several reasons. First purpose of cost allocation is to obtain the desired results or motivations. The health finance management is influenced by cost allocation. Some health firms do not have cost allocations in internal auditing or internal management while in other there is cost allocation in the upper management. Cost allocation in lower management is for making sure the benefits of services or goods exceeds the costs allocated (Caplan, 2011).
Another purpose of cost allocation is to compute income and asset evaluation. Cost of goods sold and inventory cost needs to be determined through means of cost allocation. The cost allocation method makes it easier for financial services to perform accounting activities of computing (Caplan,
Abstract
The cost allocation is a process of assigning costs to different activities. There is several methodology of cost allocation. The cost driver allocates costs into different activities and locations. Health organizations use different allocation methods according to their needs to attain organization and profitability. The purpose of allocation is to make the understanding of costs easier rather than rating the products and services. Another purpose is to compute and analyze asset evaluation. The allocation of cost to service department helps attribute and facilitate costs. There are three types of cost allocation …show more content…
Other costs might not be the major direct costs which are not important enough for justifying their allocations individually. All costs in a given pool should have the same cost driver, so each cost driver allocations have several costs (Toktay, 2011).
Purpose of Allocation
Health care managers within an organizational unit should be aware of their decisions, even consequences outside of their unit. Costs are allocated for several reasons. First purpose of cost allocation is to obtain the desired results or motivations. The health finance management is influenced by cost allocation. Some health firms do not have cost allocations in internal auditing or internal management while in other there is cost allocation in the upper management. Cost allocation in lower management is for making sure the benefits of services or goods exceeds the costs allocated (Caplan, 2011).
Another purpose of cost allocation is to compute income and asset evaluation. Cost of goods sold and inventory cost needs to be determined through means of cost allocation. The cost allocation method makes it easier for financial services to perform accounting activities of computing (Caplan,