Product Costing
Instructions
describe how service center costs are allocated using the various allocation methods. Illustrate its use by using a health care example.NB: Please see attached sample Document for guidance.
Answer
Cost AllocationCost allocation involves identifying, aggregating and assigning costs to objects. An object can be a branch or department within the organization. It is paramount for any organization that conducts business operations to allocate costs as it is used in financial reporting to spread inventory items or costs among departments or branches (Shanks, 2016). On the same note, it is used in calculating return on investment in each department and for decision making in the future. The case is also the same when it comes to healthcare organizations as they are required to allocate costs to objects as described above. Cost allocation can be done using the direct method or step (sequential) method. In the direct method of allocation, the cost of each service department is allocated base...
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