In Chapter 2, you learned that companies use product costs for different purposes. The product costs reported as inventoriable costs to shareholders may differ from the product costs reported to managers to guide their pricing and product-mix decisions. Managers must keep in mind that even though marketing and customer-service costs are expensed when incurred for financial accounting purposes, companies often trace or allocate these costs to individual jobs for pricing, product-mix, and cost-management decisions.
Robinson can trace direct marketing costs and customer-service costs to jobs the same way in which it traces direct manufacturing costs to jobs. What about indirect marketing and customer-service costs? Assume these costs have the same cost-allocation base, revenues, and are included in a single cost pool. Robinson can then calculate a budgeted indirect-cost rate by dividing budgeted indirect marketing costs plus budgeted indirect customer-service costs by budgeted revenues. Robinson can use this rate to allocate these indirect costs to jobs. For example, if this rate were 15% of revenues, Robinson would allocate $2,250 to Job WPP 298 (, the revenue from the job). By assigning both manufacturing costs and nonmanufacturing costs to jobs, Robinson can compare all costs against the revenues of different jobs.