Significance of Cost Allocation
Cost allocation entails a way of attributing costs to specified cost-centers in an organizational setting. Usually, the allocation of costs by companies is necessitated by the need to adequately satisfy sharing of relevantly incurred costs. This can be likened to spreading costs across end-users. The allocation of costs is therefore a mere assignment of costs to a number of units which constitute a company.
In a multidivisional business which requires security services for protection of its infrastructure, for instance, the various units that constitute the business will be incorporated in costs for securing the required security. Allocating costs to the various departments of a company is usually done arbitrarily. Due to the arbitrary nature of allocating costs, it is mostly considered as a sort of cost-spreading (Yuawa, 1991; Maskell & Baggaley, 2003; Johnson, 2011). In the past five or ten years, there has been a noteworthy attempt aimed at enhancing bases for allocating costs by companies (Kaplan & Bruns, 1987). This paper considers cost allocation as has been put to effective use by California Pizza Kitchen (CPK).
Considered Cost Allocation: Cost Allocation at California Pizza Kitchen
CPK is a household name in restaurant service, and offers California-style cuisine, represented through creative pizzas, pastas, soups, sandwiches, appetizers, and desserts. Opened on March 27, 1985, by the attorneys Rick Rosenfield and Larry Flax, CPK is currently owned, licensed or franchised at 265 locations in 321 states and 10 foreign countries. This makes it a chain company with networked units that are centrally controlled from its managerial framework. The chain has two directions of development, the full service restaurants, and the CPK/ASAP concept which focuses on the fast-casual service in significantly smaller restaurants. As of 2010, the company employs approximately 14,600 employees, among which 190 employees are working in the company’s headquarters in West Century Boulevard (CPK, 2010). CPK has a market value estimated at $343 million, where the revenues in 2010 were $642.2 million, with a non -GAAP net income of $17.1 million (CPK, 2011; Forbes, 2011).
The consideration of CPK here for an analysis of its costs allocation is limited to the year 2010, and is based on the company’s systemic administration through which it has achieved distinct allocation of cost to its various sects. In any case, the considered numerical values as well as the units to which the values apply are only arbitrary.
The performance credibility and an effective cost allocation of CPK have been reflected in its rating by Forbes magazine as being self-made, and on enlistment as one of America’s best small companies. This rating takes into consideration the fact that CPK has annual revenues in the range between $5million and $750 million, being publicly traded at least for a year. The company also has created for itself an appreciably wide marketing platform which constitutes a demography that is economically, naturally, environmentally, technically, and socially suitable for an effective marketing of its products.
Selected inputs for this analysis include cost of labor, the salary of managers, as well as cost of raw material for producing the products. The imaginary costs as to this effect are $60000, $24000, and $12000. These costs are factually based on employees and direct-employees. Direct-employees are allocated 120.0; 25.0 of this is for mixing and for production-control 5.0 is allocated. Packaging takes 35.0. The factual costs of the materials are fixed at 45,000.0, the packaging process takes 10,000.0 and then mixing of the product and production-control takes 5000.0. The allocation of cost could as well be shown as in table below:
Table of imaginary costs allocation for California Pizza Kitchen for the years 2010
From the table, it implies that in allocating the cost, the packaging unit is assigned the highest share.
Implication of the Analysis
This study has proved that the articles in ProQuest are effective in enabling decisions by users of the financial statements.
Reference List
CPK. (2010). California Pizza Kitchen, Inc. and Subsidiaries 2009 Annual Report on Form 10-K. California Pizza Kitchen.
CPK. (2011). California Pizza Kitchen Announces Financial Results for the Fourth Quarter and Fiscal Year 2010. California Pizza Kitchen. Web.
Forbes. (2011). The 200 Best Small Companies: California Pizza Kitchen. Forbes.com LLC.
Johnson, H. H. (2011). Consortium for Advanced Manufacturing-International. New York: Longman.
Kaplan, R. S., & Bruns, W. (1987). Accounting and Management: A Field Study Perspective. Harvard Business School, 27, 237- 238.
Maskell, P., & Baggaley, Y. (2003). Practical Lean Accounting. New York: Productivity Press.
Yuawa, K. (1991). Cost accounting. Journal of Bank Cost and Management Accounting, 4, 1.