This paper examines the cost allocation practices of K-Swiss Inc., a global footwear company with multi-level departmental operations. It outlines the specific allocated costs associated with manufacturing K-Swiss sneakers — including materials such as cotton, plastic, leather, and rubber, as well as machinery, technology, and labor — and explains the role these inputs play in departmental budgeting. The paper also contrasts allocated cost structures with unallocated approaches, arguing that an aggregate view of company costs can reduce siloed decision-making and provide a broader picture of organizational performance. The analysis demonstrates how cost allocation serves as a tool for isolating expenses by revenue source rather than consolidating all costs into a single account.
K-Swiss has operations on numerous continents with multi-level departmental responsibilities for product and brand management. Its divisions create and manage product and, in doing so, acquire allocated costs associated with the manufacture and sale of goods. As noted in the footwear retail industry, "Adidas and Reebok — and to a lesser extent New Balance and K-Swiss — saw big increases in orders from Foot Locker; Adidas, Reebok, and K-Swiss all report robust sales and big increases in their Foot Locker business" (Retail Top 100, 2003).
These divisions facilitate orders to retail outlets for the sale of product. The K-Swiss sneaker division, for example, carries an allocated cost for materials, machinery, technology, and labor necessary to manufacture a set number of sneakers. Under many circumstances, these variables are simply referred to as capital and labor. However, for the purposes of cost allocation at the departmental level, describing the specifics of the cost structure is critical to understanding the inputs required and the yield on output of those same inputs.
Cost accounting at the departmental level requires careful identification of each expense category tied to a specific revenue source. For K-Swiss, the sneaker division represents a clear example of how allocated costs are assigned. Rather than consolidating all company costs into a single account, cost allocation isolates expenses by department, enabling more precise tracking of profitability and resource use.
The cost to K-Swiss, without regard to departmental allocation, does not appear excessive or prohibitive to growth, nor does it suggest any risk of financial distress. Sneakers are relatively inexpensive to produce, and cost allocation is a method to isolate expenses to an account specific to their revenue source rather than commingling all company costs into a single account.
The manufacture of K-Swiss sneakers yields the following allocated costs (all figures are estimated). Materials include cotton ($100), plastic ($100), leather ($1,000), and rubber ($700). Machinery ($1,000,000) is also an allocated cost necessary to manufacture sneakers on a production line. Technology ($2,500) covers the computers and software used to track and check for quality assurance and process control. Finally, labor is estimated at $5 per employee per hour as the unit cost.
"Aggregate cost view and silo mentality reduction"
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