ABSTRACT
The cost accounting practice in the United States is significantly different from that in Japan. In the United States (and probably in Europe), it is believed that more appropriate costs are derived from the allocation of overhead costs by activity-based costing (ABC) systems than that by traditional department costing systems. The chapter provides an overview of traditional cost allocation systems and ABC systems, and explains how hybrid cost allocation systems mix both these systems in Japanese companies. Next, it examines how the role of support departments became important. The hybrid cost-allocation system mainly uses the structure of department costing systems. The chapter reviews the result of a survey of overhead cost allocation systems in Japanese companies. It also explains a dual-rate method of allocating support department costs. In the dual-rate method, variable costs and fixed costs are allocated by different cost-allocation bases. The chapter describes the innovative allocation system in Japanese companies developed as a substitute for ABC systems.
