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Sample Essay on Module 4 Discussion ACC 2000

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Sample Essay on Module 4 Discussion ACC 2000

In the process of production, some expenses are incurred. These expenses are called costs and they are incurred due to different activities. Some of these expenses would be due to costs for buying raw materials, costs for distributing the products made, costs for selling the products and costs for advertising the products. These costs are incurred by the firm in whole but since there are several departments, these costs are incurred differently depending on the activities undertaken. This is because the activities that are undertaken vary with departments. Two types of departments are found in a producing firm; the service and production costs centers. Therefore, there is a need for separating the costs that are incurred by the respective departments to ensure that each department is accountable of the costs it has incurred only.

 Different approaches are used to ascertain these costs to their respective service cost centers. Allocating costs directly to the service centers is done. This method assumes that service departments do not offer services to other service cost centers. Therefore, costs are calculated are allocated depending on the units related to the center. Use of equations solved simultaneously could also be used. In this case, an equation is used based on the highest and the lowest level of production. After solving the equation, the numbers of units connected to the service department are identified and thus are multiplied with their respective prices to determine the total costs. Another approach that could be used is distribution of the production costs to the service centers repeatedly. Costs are redistributed to the service departments using a certain ratio until they are over. Reciprocal approach, which is also used, involves getting the reciprocal portion of costs incurred when a service department offers services to other service departments. In this case, some equations are solved and the number of units identified thus, costs are obtained.


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