Question

Simple answer please.

Imagine you are a CEO of a bakery company that has decided to implement an activity-based costing system to better allocate associated costs of producing loafs of bread, packaged rolls, and packaged crescents. What rate allocation method would you use (plantwide or departmental)? Why would you choose that method over the other?

Answer 1

Under departmental allocation method, the activities are identified in each department individually rather than as a whole organization.

Departmental allocation method may be difficult to arrive at initially. But, it will provide you the best cost for each department and each activity.

Plantwide allocation method will only consider the activities for the whole organization rather than departments.

So, the calculation of activity cost may be easy to arrive. But, it won't reveal the exact cost .

So, it is better to follow departmental rate as it will provide more accurate measurement of cost.

But for a small business it will not make much difference in both method of allocation.