Managerial accounting

Problem 1

Regarding cost allocation theory you are asked to describe;

1. What is the purpose of cost allocations,

2. What are the consequences of allocating costs/not allocating costs,

3. The basic principles in;

a. The Direct Allocation Method,

b. The Step-Down Method and,

c. The Reciprocal Allocation Method.

4. Discuss advantages and disadvantages for each of the three methods.

Problem 2

Regarding budgets for the following characteristic and design choices;

 Budget ratcheting,

 Participative Budgeting,

 Line-item Budgets,

 Budget Lapsing and

 Incremental Versus Zero-based Budgets,

discuss advantages and disadvantages using the perspective of decision making as well as decision


Problem 3

Define Absorption Cost Systems and Activity Based Costing. Discuss what kind of problems the two

systems are supposed to be able to solve and consequences that might appear by using them. The

three-legged stool perspective is expected to be used in the discussion.

Problem 4

Regarding responsibility the curriculum operates with different types of centers. Describe these

center types, their purposes(s) and their limitations regarding allocation of decision rights and

performance measures.

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