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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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(Appendix 4B) Assume that a company has decided not to allocate any support department costs to producing departments. Describe the likely behavior of the managers of the producing departments. Would this be good or bad? Explain why allocation would correct this type of behavior.

To determine

State the behavior of production managers in case support department costs are not allocated to producing department. Also state whether it is a good or bad, and the role of allocation in the correction of this type of behavior.

Explanation

Allocation:

Allocation can be defined as the process of assigning the indirect costs to the cost object with the help of a convenient and reasonable method. The allocation of indirect costs to the cost objects is an essential process.

If support department cost is not allocated to the customer then the cost and price of the product will be lower which will disappoint the production manager...

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