Cost Accounting 101 Practice Test: Allocation of Support-Department Costs, Common Costs, and Revenues Basics — Flashcards

Support-department costs: Cost allocation is the process of assigning common resource costs to cost objects or common costs. 
The three steps in allocating costs are:
Trace all overhead costs to a support or producing department
Allocate support-department costs to the producing departments
Allocate overhead costs to units of individual products using a predetermined overhead rate

Common costs: Common costs include rent, phone and utilities, licenses and tax deposits, professional services, insurance, travel expenses, office and other administrative supplies, and marketing budgets.
Revenue allocation: Revenue allocation is the distribution of total income by a company or government. Revenue is distributed in each area/department according to priorities, challenges, needs, and particular conditions. 

There are three methods for allocating support department costs to operating departments: Direct allocation method, Traditional costing method, and Activity-based costing method. 
The key differences among the methods are the assumptions as to how services provided by one support department are allocated to other support departments.