Cost Allocation (Example)

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Name: Professor’s name: Institution: Date: Cost Allocation Introduction This paper seeks to give an understanding of the concept of cost allocation and its importance in the running of different organizations. Additionally there is also a review of the benefits accrued from a management control system which assists in the provision of procedures used in the assignment of individual goals with objectives of an organization. This is achieved through the analysis of the manner in which personal and organizational goals are tied especially in the delegation of duties by managers in making decisions. Understanding goals for employees to ensure that they realize the objectives of an organization and they are usually not worried of engagement in fraud by other managers. Works Cited Goetsch David L. and Stanley B. Davis. Quality management for organizational excellence. Upper Saddle River NJ: pearson 2014. Lanen William N. et al. "Fundamentals of cost accounting." Issues in Accounting Education 25.4 (2010): 791-792. Maher Michael William N. Lanen and Madhav V. Rajan. Fundamentals of cost accounting. McGraw-Hill/Irwin 2006. William Lanen and Shannon Anderson and Michael Maher. (n.d.). Fundamentals of Cost Accounting 5th Edition. Retrieved August 20 2017 from http://www.mheducation.com/highered/product/fundamentals-cost-accounting-lanen-anderson/1259565408.html [...]

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We will consider the use of cost allocation this week. Cost allocation is the process of assigning common costs to two or more cost objects. Ideally, cost allocation reflects a cause-and-effect relation between costs and the objects to which they are allocated. Joint cost allocations are needed to assign common costs to two or more products manufactured from a common input. The purpose of joint cost allocation is to relate the costs of the inputs to the economic benefits received. There is no direct way to do this for joint products so we must use approximations as necessary. We will also review the benefits of a management control system which can provide procedures for aligning individual goals with organizational goals when managers have been delegated the authority to make decisions. A management control system organizes the company’s activities into responsibility centers whose type reflects the nature of the decisions delegated. The Treadway Commission has indicated that two factors that give rise to fraud is (1) the existence of pressure on division managers to achieve unrealistic profit objectives and (2) bonus plans based on achieving short-run financial results, particularly when the bonus is a large component of an individual’s compensation. Why would upper management set unrealistic goals? Wouldn’t they consider the fact that some managers would engage in fraud in order to meet profit objectives or short-run financial results? William Lanen and Shannon Anderson and Michael Maher. (n.d.). Fundamentals of Cost Accounting 5th Edition. Retrieved August 20, 2017, from http://www.mheducation.com/highered/product/fundamentals-cost-accounting-lanen-anderson/1259565408.html