4. Rational" allocation of fixed costs
Here, "rational" is not opposed to "irrational": the term simply means that fixed costs are allocated according to a ratio (the ratio between actual activity and normal activity).
4.1 The need for rational imputation
In all the foregoing, we have assumed that the level of activity for the period was "normal", i.e. that the company was neither under- nor over-active. However, the company may be going through difficult economic times (economic crisis, "technical unemployment"), or may have been over-optimistic, investing too much or over-sizing a production facility that ends up being under-utilized. In such cases, we need to reintroduce the variable/fixed costs distinction and treat fixed costs specifically, otherwise we end up with aberrant full costs, which...
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Rational" allocation of fixed costs
ABC method
Bibliography
It's important to understand that this article is only a brief introduction to the basics of cost accounting, which is a fundamental discipline in management and features prominently in all accounting training courses in France and the French-speaking world; in business schools, in university management courses and in establishments such as CNAM-INTEC.
So there are bound to be a host of excellent...
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