Common Costs:
The Manufacturing
department sometimes use same allocated
costs for two different products manufacturing processes.
That is known as
Common Costs. We define this costing activity as follows:
According to
the Gleim Book for CMA-USA sub unit Responsibility Accounting and Performance Measures“The Common Costs are those cost of products ,activities
, facilities, services or operations shared by two or more cost objects.” The
Common cost is allocate on sharing basis.”
There are two different approaches which are generally use to
allocate the common cost and these are stand-alone method of common cost
allocation and incremental common cost allocation method.
“In this
method the managerial accountants allocates a portion of cost to each users on
the basis of their use and apply a ratio of equal margin to provide the benefits to users
and divided by the sum of the stand
alone cost of users.”
The variation of this technique is known as incremental cost.
In which the cost allocation is on the basis of the priority basis take place.
“In the
incremental method the managerial accountants establish a priority amount users
and allocates common costs to the primary party up to the amount of that user’s
stand-alone cost. The remaining common costs are then allocated to the
incremental party or parties.”
That’s the common cost two
different methods of allocation the managerial accountants use both of them as
per their use and requirement s.
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