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Essay / Research Paper Abstract
This 3 page paper looks at the way in which indirect costs, also known as overhead costs are allocated; considering some of the processes that may be used starting with absorption costs and looking at the potential of activity based costing. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEallidc.doc
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Unformatted sample text from the term paper:
allocate them in a way that gives a fair total cost for the good or service provided. This is needed in order to facilitate effective management decision-making concerning issues such
as pricing, as well as production levels, particularly importance if the company is seeking set price in order to optimize the profit, by using a necessity in order to set
price to match the optimum production level where there is the lowest average total cost (Nellis and Parker, 2006). There are different ways in which indirect costs can be allocated.
The direct cost allocation is simple, the materials and direct inputs utilized by production are allocated to that output. In direct costs include number of different types of cost, which
can include rent, utilities, insurance as well as general administration and marketing. The indirect costs are often referred to as fixed costs, indicating these costs remain the same regardless of
the level of production. However, this can be misleading as although costs may not very a great deal, there can be some differences. For example, a manufacturing facility undertaking a
high level of production may have higher utility bills compared to the same facility with a lower level of production (Chadwick, 2007). Likewise, the marketing budget may increase where there
are higher levels of sales pursued. The reason is often indirect costs are the same resources may be utilized to support the production and sales of a number of different
items for the same facility. The allocation of some costs may be straightforward, but a number of choices exist, and different costs can be allocated in different ways. The traditional
types of drivers allow for the different types of indirect costs to be allocated on a proportional basis. This may be based on portion of sales or revenues a particular
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