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Accounting TD (Essay Sample)

This will consists of two essays. 1.Why not allocate common costs? CONGRATULATIONS! ... You are the new CFO of the organization. And next week you will have your 1st meeting with the executive board. In the past, there were attempts to allocate ALL common costs for reasons such as GAAP, contract agreements, and product pricing. Upon reviewing the situation, you feel that a much more accurate method for use in managerial decision-making inside the firm would be to use segment margins, transfer pricing, and other processes such as goal congruence from this point forward. How will you PRESENT and EXPLAIN these MAJOR paradigm shifts to the board? 2.we discussed the rule-making structure (i.e., GAAP, FASB rulings, etc.) as it relates to accounting as a practice and the related principles. The US Tax Code and other applicable laws also come into play quite a bit. For example, a recent decision by the high court is another example of how rules could be changed in the accounting world (albeit from an interpretive stance on the part of the judicial branch of government). A snapshot of the story is in the Wall Street Journal's 2/22/07 edition. The case involves a Mr. Marrama. One could also find a more complete story from other papers in the AP network or the court's reports. In any case, if you choose to look this over, a successful post to this string would do either of the following…. -Give a precis of the decision and particulars surrounding it (i.e., the who, what, where, and why of it). OR -Explain how entities other than the rule-making bodies discussed in last module's sidebar (such as the courts, et al) could affect accounting rules. source..
Accounting TD
Question 1: Why not allocate common costs?
For an organization, how its expenses or costs are allocated to the different operational centers is important to the long term profitability of the company. Where as many executives will be okay with allocating all costs to the organization - in the books of accounts this does capture the overall costs incurred by the organization, it is increasingly necessary to allocate costs as per the different operations in a organization - especially an organization with multiple operations, so as to determine how each operations contributes to the overall profitability of the organization.
In an effort to achieve this, an organization can use segment margins-a precise indication of each segments (product or service determined) contribution to the overall organization profitability, transfer pricing-determining the cost of goods and services when transferred between different divisions in the same company and goal congruence-optimization of divisional performance in order to achieve optimal organizational performance and to facilitate determination of divisional performance.
Achieving this will allow the organization determine how ...
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