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Essay / Research Paper Abstract
This 4 page paper looks at the way in which overhead costs are allocated and applies this to products from a well known firm. The example pf McDonalds is used, with assumptions made regarding the way costs may be allocated. The paper includes a recasting of costs with a segmented income statement in the contribution format. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEMcDcosting.doc
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Unformatted sample text from the term paper:
they can be accounted for in order to ensure that the total operations will remain profitable. By understanding the way costs are allocated and understanding the underlying costs prior to
cost allocation it is possible to consider if products are being priced in the correct manner and if they are making a positive contribution towards the firms revenue production (Atkinson
et al, 2011). For example, when looking at an item where all costs are allocated the overhead allocation may skew the contribution and profitability that the product is making towards
the firms financial performance. Therefore, costing with the understanding and assessment of costs both before and after allocations of costs is needed in financial and strategic management decisions. The
financial reports made by McDonalds do not indicate the way in which cost allocation takes place. There are many overheads. First there are the overheads from the provision and services
offered by head office, which include not only admin services but also marketing and sales support. At a restaurant level the overheads are all the costs that are not directly
related to the cost of the item being produced. These can include costs such as rent, insurance, utility bills, as well as the allocation of the head office costs. In
an environment where an employee undertakes a number of different tasks labor may also be deemed an overhead, although it is sometimes referred to as a semi variable cost (Atkinson
et al, 2011). Generally, overhead costs remain the same regardless of the level of production (Atkinson et al, 2011). Labor in a fast food restaurant will vary depending on the
level of production, but we will not deem it to be a direct cost. For example, if the restaurant serves only a dozen customers in an evening there will still
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