Cost Allocation Analysis

Let’s look at the differences between process and job-order costing:

Envision yourself as a CFO at a customized furniture manufacturer and you have been given the task of setting up the cost accounting system. Based on the concepts learned in chapters 4, 5,( job order costing, process costing) and your personal experience, describe to me the quantitative and qualitative questions that would need to be answered before deciding how you would allocate your costs. Provide answers to your initial questions.

Now answer the following for me:

  1. Describe to me how you would allocate manufacturing overhead? Why did you choose this method?
  2. Describe to me the different departments that may need to be set up to allocate costs. This could be one or more than one depending upon your cost allocation process chosen.
  3. Walk me through the process of how costs are going to flow through your system (from the moment raw materials are purchased until the finished good is finally sold).

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