Allocating indirect costs to revenue areas

1. Financial Management
TOPIC
Jl IKPN Bintaro No 1, Pesanggrahan,
Tanah Kusir, Jakarta, Special Capital
Region of Jakarta 12330, Indonesia
ALLOCATING INDIRECT
COSTS TO REVENUE
AREAS

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Allocating Indirect Cost to Revenue Area
One of the difficulties in allocating indirect costs is determining the correct basis to be used to apportion indi-
rect costs to each sales revenue department or division. Some of the methods that could be used were discussed
in Chapter 2. If the allocation of indirect costs is made using an incorrect basis, then incor- rect decisions
could be made. If the correct allocation basis were used, then pre- sumably the incorrect decisions would not
be made.
Consider the following restaurant complex that has two main sales revenue outlets, a dining room and a snack
bar. Sales revenue and direct costs for each sales area and indirect costs that have not been distributed are
shown below for a typical month; an average monthly operating income for the total operation is stated at
$12,000.

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