Imputation Rationelle Cost Accounting Method

Imputation of Structure Costs

L'imputation Rationelle Method

One of the main disadvantages of full-cost systems is that the unit cost of the product depends not only on the productivity and cost of the applied resources but also on the activity level of the productive centers. The Imputation Rationelle method avoids the influence of this variance (between actual and normal activity level) in unit costs when using a full-cost system. The method modifies the department fixed costs to be assigned to products following these steps:

1. Activity rate calculation for each department and period of analysis (t): the actual activity level (Ar) divided by the normal activity level (An).
2. Actual fixed/structure cost for the period (F) is multiplied by the rate of activity of the department (t). The result is the fixed cost to be assigned to products.

When t < 1, there is underallocation of costs, and (1-t)F is the amount (that is, underactivity cost not accumulated to product costs, and then it is a period cost).

When t > 1, there is overallocation, and (t-1)F is the amount.

The Imputation Rationelle method is a mix of actual and predetermined costs and of full cost and direct cost systems. It introduces in the actual full cost system some characteristics of standard-cost and direct-cost systems.

The Imputation Rationelle method requires the estimation of normal levels of activity for every center, and this is a similarity with normal-costing. However, the Imputation Rationelle method only needs the activity level, while normal-costing also needs the budgeted cost of the center or department.

Advantages and Disadvantages

Advantages

• It is possible to estimate the production costs by multiplying the unit cost by the number of units.
• It makes correct inventory valuation in financial accounting easier.
• It makes the control of the productive process easier, as the cost of the services between centers is not modified because of the variation in the level of activity.

Disadvantages

• It is more complex to implement than actual full-cost systems, as it requires:
  1. Calculating the normal activity rates for every center.
  2. Determining the fixed costs of every center.
  3. Adding, in the accounting plan of the company, control accounts for a separate recording of the differences in the assignment of fixed cost.
• When performing cost-volume profit analysis, it is more complex to apply than direct costing, as Imputation Rationelle would require calculating the activity variance for every volume of production.
• In contrast with standard-cost systems, the Imputation Rationelle method does not separate either price variance or center-productivity variances, although it calculates the activity variance.