Stand-alone cost method

The stand-alone cost method allocates group costs to users as a proportion of the costs that would have been individually incurred by each user. For example, the field service department and the returns department separately want to ship repaired appliances to two customers located in the same town. To do so individually, the field service department would have to pay $300 in shipping charges, while the returns department would have to pay $150. The company instead decides to rent its own truck and driver to make the deliveries, at a total cost of $330. Under the stand-alone method, the field service department is charged $220 of the delivery cost, under the following formula:

$300 Independent field service delivery ÷ ($300 Independent field service delivery

+ $150 Independent returns department delivery)

= 66.67% of total cost of independent deliveries

66.67% x $330 Consolidated delivery = $220 Cost allocation

The same formula is used to charge $110 to the returns department.

This approach is a relatively simple and understandable method for allocating costs.

Related Courses

Activity-Based Costing
Cost Accounting Fundamentals