Support Cost
This article covers meaning & overview of Support Cost from operations perspective.
What is Support Cost?
Support Cost are the Expenses or cost incurred in process which are not directly associated with the final product or service provided by a firm. It is called as the support cost related to the product or service.
Why Firms Allocate Support Cost?
Methods of Support Cost Allocation
1) Direct Method of Allocation
One of the most simple method of allocation where support department cost is allocated to the production units or department.
2) Sequential Method of Allocation
The sequential/step method of allocation recognizes that interactions among sup¬port departments do occur.
This technique assigns the expenses of some administration divisions to other administration divisions, however once an administration office's expenses have been assigned, no consequent expenses are apportioned back to it.
• The decision of which division to begin with is important
• The most solid succession is to begin with the administration division that gives the most noteworthy rate of its aggregate administrations to other administration divisions, or the administration division that gives administrations to the most number of administration divisions, or the administration office with the most noteworthy expenses, or some comparative
3) Reciprocal Method of Allocation
The reciprocal method is the most precise of the three routines for apportioning administration office costs, in light of the fact that it perceives proportional administrations among administration divisions. It is additionally the most confounded technique, since it requires understanding an arrangement of simultaneous linear equations.
Example:
The above example is an example of Support Cost. Departments like Service and Personnel Cost are not directly related to Assembly and Finishing of Product A and B.
Hence, this concludes the definition of Support Cost along with its overview.
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