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One can use 4 methods of Cost Allocation in Healthcare Finance:1. Direct Method2. Step-Down Method3. Double Apportionment Method4. Reciprocal Method
how does the direct method of cost allocation work
allocation rate=cost pool amount/ cost driver volume
no
Because in ABC costing overheads are allocated based on activities performed by departments rather based on any rate or formula that's why as much activity any department perform as much cost will be allocated which is more accurate way of allocation.
Cost objectives determines the cost allocation. It determines the product, service or department that will receive the allocation.
Yes, it is. When used for allocating costs, a cost driver is often called a cost-allocation base
allocate cost arbitrarily
Cost allocation allows a company to determine the amount each item produced will cost. An effective cost allocation will be able to track down the shared costs of production not only to the divisions but also to the products and customers that use those costs.
The following are the differences between allocation and apportionment. 1. Allocation costs are directly allocated to cost centre. Overhead which cannot be directly allocated are apportioned on some suitable basis. 2. Allocation allots whole amount of cost to cost centre or cost unit where as apportionment allots part of cost to cost centre or cost unit. 3. No basis required for allocation. Apportionment is made on the basis of area, assets value, number of workers etc.
Advantages:Considers some of the interdependence of service departmentsDisadvantages:Resulting allocations are inaccurate estimates of opportunity costs.Allocation less than opportunity cost for first departmentAllocation more than opportunity cost for last department
Departmentalisation of overhead means allocation of overhead cost base on predertmined rate in case of absorption method and based in activities in case of activity based costing.