MBA 5000 Week 3 Assignment 2 Cost Allocation Systems
Cost Allocation Example & Definition
Cost allocation is the distribution of one cost across multiple entities, business units, or cost centers. An example is when health insurance premiums are paid by the main corporate office but allocated to different branches or departments.
When cost allocations are carried out, a basis for the allocation must be established, such as the headcount in each branch or department.
Cost Allocation Methodology
A cost allocation methodology identifies what services are being provided and what these services cost. It also establishes a basis for allocating these costs to business units or cost centers based on their appropriate share of such cost.
The basis for allocating costs may include headcount, revenue, units produced, direct labor hours or dollars, machine hours, activity hours, and square footage.
Companies will often implement a cost allocation methodology as a means to control costs. Under an effective cost allocation methodology, business units become directly accountable for the services they consume. As a result, both the service provider and the respective consumers of that service become aware of service requirements and usage, and how such usage influences the costs incurred.
As business units begin seeing the cost of the services they consume, they can make more informed choices—such as trade-off decisions between service levels and costs, and benchmarking internal costs against outsourced providers.
Process for Performing Cost Allocations
Using a basis for allocation, costs are spread to each business unit or cost center that incurred the cost based on their proportional share of the cost. For example, if headcount forms the basis of allocation for insurance costs, and there are 1000 total employees, then a department with 100 employees would be allocated 10% of the insurance costs.
While there are numerous ways cost allocations can be calculated, it is important to ensure the reasoning behind them is documented. This is often done by establishing allocation formulas or tables.
Once the calculation is established and cost distributions are calculated, journal entries are created to transfer costs from the providing or paying entity to the appropriate consuming entities. During each financial period, as periodic expenses are incurred, this calculation is repeated and allocating entries are made.
What Does a Cost Allocation System Do?
A cost allocation system consists of a way to track which entity within an organization provides a product and/or service, the entity that consumes the products and/or services, and a means of distributing this cost from the provider to the consumer or consumers. Depending on the operating structure of the company, the cost allocation may be performed by internal invoice, through a chargeback module in the ERP system, or more commonly, through journal entries performed by accounting staff each financial period.
MBA 5000 Week 3 Assignment 2 Cost Allocation Systems
Discussion Questions (DQ)
• Initial responses to the DQ should address all components of the questions asked, include a minimum of one scholarly source, and be at least 250 words.
• Successful responses are substantive (i.e., add something new to the discussion, engage others in the discussion, well-developed idea) and include at least one scholarly source.
• One or two sentence responses, simple statements of agreement or “good post,” and responses that are off-topic will not count as substantive. Substantive responses should be at least 150 words.
• I encourage you to incorporate the readings from the week (as applicable) into your responses.
Weekly Participation
• Your initial responses to the mandatory DQ do not count toward participation and are graded separately.
• In addition to the DQ responses, you must post at least one reply to peers (or me) on three separate days, for a total of three replies.
• Participation posts do not require a scholarly source/citation (unless you cite someone else’s work).
• Part of your weekly participation includes viewing the weekly announcement and attesting to watching it in the comments. These announcements are made to ensure you understand everything that is due during the week.
APA Format and Writing Quality
• Familiarize yourself with APA format and practice using it correctly. It is used for most writing assignments for your degree. Visit the Writing Center in the Student Success Center, under the Resources tab in LoudCloud for APA paper templates, citation examples, tips, etc. Points will be deducted for poor use of APA format or absence of APA format (if required).
• Cite all sources of information! When in doubt, cite the source. Paraphrasing also requires a citation.
• I highly recommend using the APA Publication Manual, 6th edition.
Use of Direct Quotes
• I discourage overutilization of direct quotes in DQs and assignments at the Masters’ level and deduct points accordingly.
• As Masters’ level students, it is important that you be able to critically analyze and interpret information from journal articles and other resources. Simply restating someone else’s words does not demonstrate an understanding of the content or critical analysis of the content.
• It is best to paraphrase content and cite your source.
LopesWrite Policy
• For assignments that need to be submitted to LopesWrite, please be sure you have received your report and Similarity Index (SI) percentage BEFORE you do a “final submit” to me.
• Once you have received your report, please review it. This report will show you grammatical, punctuation, and spelling errors that can easily be fixed. Take the extra few minutes to review instead of getting counted off for these mistakes.
• Review your similarities. Did you forget to cite something? Did you not paraphrase well enough? Is your paper made up of someone else’s thoughts more than your own?
• Visit the Writing Center in the Student Success Center, under the Resources tab in LoudCloud for tips on improving your paper and SI score.
Late Policy
• The university’s policy on late assignments is 10% penalty PER DAY LATE. This also applies to late DQ replies.
• Please communicate with me if you anticipate having to submit an assignment late. I am happy to be flexible, with advance notice. We may be able to work out an extension based on extenuating circumstances.
• If you do not communicate with me before submitting an assignment late, the GCU late policy will be in effect.
• I do not accept assignments that are two or more weeks late unless we have worked out an extension.
• As per policy, no assignments are accepted after the last day of class. Any assignment submitted after midnight on the last day of class will not be accepted for grading.
Communication
• Communication is so very important. There are multiple ways to communicate with me:
o Questions to Instructor Forum: This is a great place to ask course content or assignment questions. If you have a question, there is a good chance one of your peers does as well. This is a public forum for the class.
o Individual Forum: This is a private forum to ask me questions or send me messages. This will be checked at least once every 24 hours.
