Cost Accounting – 12^th Edition

Ch 15 Terms

Allowable cost – Cost that parties to a contract agree to include in the costs to be reimbursed.

Artificial cost – See complete reciprocated cost.

Bundle product – A package of two or more products (or services) that is sold for a single price, but individual components of the bundle also may be sold as separate items at their own “stand-alone” prices.

Common cost – Cost operating a facility, activity, or like cost object that is shared by two or more users.

Complete reciprocated cost – The support department’s own costs plus any interdepartmental cost allocations. Also called the artificial cost of the support department.

Cost Accounting Standards Board (CASB) – Government agency that has the exclusive authority to make, put into effect, amend, and rescind cost accounting standards and interpretations thereof designed to achieve uniformity and consistency in regard to measurement, assignment, and allocation of costs to contracts within the United States.

Direct allocation method – Cost allocation method that allocates each support department’s costs directly to the operating departments. Also called direct method.

Direct method – see direct allocation method

Dual-rate cost-allocation method- Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.

Dual-rate method- see dual-rate cost-allocation method

Incremental cost-allocation method– Method that ranks the individual users of a cost object in the order of users most responsible for the common costs and then uses this ranking to allocate costs among those users.

Incremental revenue-allocation method – Method that ranks individual products in a bundle according to criteria determined by management (for example, sales), and then uses this ranking to allocate bundled revenues to the individual products.

Operating department- Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

Production department – See operating department.

Reciprocal allocation method – Cost allocation method that explicitly includes the mutual services provided among all support departments.

Revenue allocation– The allocation of revenues that are related to a particular revenue object but cannot be traced to it in an economically feasible (cost-effective) way.

Revenue object- Anything for which a separate measurement of revenue is desired.

Service department- See support department.

Single –rate cost- allocation method- Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of the single allocation base.

Sequential allocation method- See step-down allocation method.

Stand-alone cost-allocation method- Method that uses information pertaining to each user of a cost object as a separate entity to determine the cost-allocation weights.

Stand-alone revenue-allocation method- Method that uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products.

Step-down allocation method- Cost allocation method that allows for partial recognition of the services provided by support departments to other support departments. Also called sequential allocation method.

Support department- Department that provides the services that assist other internal departments ( operating departments and other support departments) in the company. Also called a service department.