Cost Allocation Methods and Their Characteristics: A Case Study of CMI Safe Co

Advanced Accounting
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Executive summary
The following assignment contains a detailed analysis on the cost allocation methods and
there characteristic. A case study relating to CMI Safe co has been discussed in the following.
The discussion on cost data and cost allocation methods has helped us have an insight into the
problem face by the company and hereby come up with a solution.
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Contents
Introduction................................................................................................................................4
Traditional costing system and its disadvantages......................................................................5
Activity based Costing...............................................................................................................6
Calculation of rate per activity and revised income statement under activity based costing.....7
Affect of allocation system on product cost and profit..............................................................9
Conclusion................................................................................................................................10
Bibliography.............................................................................................................................11
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Introduction
The cost decision making is a very vital part of managements work. It is important that the
cost allocation techniques opted for determining the product cost is selected based on the
production process (Alvarez, 2013). The companies with simple production process involving
one product should opt for traditional costing, but the companies having more than one
product should opt for activity based costing (Atkinson, 2012). In our discussion below we
have discussed about the case of CMI safe co which has been having some troubles with its
two product lines- plastic and metal safes. The methods of cost allocation and there
characterises have been discussed, in order to help the management with the same.
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