ch15 cost accounting allocations

ch15 cost accounting allocations - Chapter 15 Cost...

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Unformatted text preview: Chapter 15 Cost Allocation: Service Departments, Common Costs and Revenues 15-2 Issues How should service department (providers of support for production departments) costs be allocated to products and if so how? How should common costs (cost of operating a facility, activity that are shared by multiple users) be allocated to products and if so how? How should revenue from bundled products be allocated to the component products? 15-3 Learning Objectives 1. 2. 3. 4. 5. Identify the strategic role of cost allocation Distinguish the single-rate method from the dual-rate method Allocate support-department costs using the direct method, step-down method, and the reciprocal method Allocate common costs using the stand-alone method and the incremental method Allocate the revenues of a bundled product to the individual products in that bundle 15-4 Learning Objective One Identify the strategic role of cost allocation Process of Cost Allocation 15-6 Purposes of Cost Allocation 15-7 Cost Allocations and Contracting The US government reimburses most contractors in either of two main ways: 1. 2. The contractor is paid a set price without analysis of actual contract cost data The contractor is paid after an analysis of actual contract cost data. In some cases, the contract will state that the reimbursement amount is based on actual allowable costs plus a fixed fee (cost-plus contract) 15-8 Learning Objective Two Distinguish the single-rate method from the dual-rate method 15-9 Issues 1. Should the service department costs be broken down by behavior (fixed and variable) and should the resulting cost pool be allocated on a different basis? Single-rate method Dual-rate method 1. Should the allocations be based on budgeted rates and hours or actual rates and hours? Budgeted rate and hours budgeted to be used by operating divisions. Budgeted rate and actual hours used by operating divisions Actual rate and actual hours used by operating divisions Single-Rate and Dual-Rate Methods The single-rate cost allocation method pools together all costs in a cost pool. 15-10 The dual-rate cost allocation method classifies costs in each cost pool into two cost pools – a variable-cost cost pool and a fixed-cost cost pool. 15-11 Allocation Bases Under either method, allocation of service department costs can be based on one of the three following scenarios: 1. Budge d ove ad rateand budge d hours te rhe te Budge d ove ad rateand actual hours te rhe Actual ove ad rateand actual hours rhe 1. 1. 15-12 Dual Allocation Ace Co. has a maintenance department and two operating departments: cutting and assembly. Variable maintenance costs are budgeted at $0.60 per machine hour. Fixed maintenance costs are budgeted at $200,000 per year. Data relating to the current year are: Percent of Actual User Capacity Hours Departments Demanded Used Cutting 60% 80,000 Assembly 40% 40,000 Allocate Total hours maintenance costs to 100% 120,000 the two operating departments. 15-13 Dual Allocation Cutting Department Variable cost allocation: $0.60 × 80,000 hours used $0.60 × 40,000 hours used Fixed cost allocation $ 48,000 $ 24,000 Assembly Department Total allocated cost Variable costs are allocated based on hours used. 15-14 Dual Allocation Cutting Department Variable cost allocation: $0.60 × 80,000 hours used $0.60 × 40,000 hours used Fixed cost allocation 60% of $200,000 Total allocated cost $ 48,000 $ 120,000 $ 168,000 24,000 Assembly Department Variable costs are allocated based on hours used. Fixed costs are allocated based on capacity demanded.. 15-15 Dual Allocation Cutting Department Variable cost allocation: $0.60 × 80,000 hours used $0.60 × 40,000 hours used Fixed cost allocation 60% of $200,000 40% of $200,000 Total allocated cost $ 48,000 $ 120,000 $ 168,000 $ 80,000 104,000 24,000 Assembly Department Variable costs are allocated based on hours used. Fixed costs are allocated based on capacity demanded.. 15-16 Fixe costs of ope d rating thecom r facility in the pute 6,000-hour to 18,750-hour re vant range le Practical Capacity Budge d long run usagein hours te Microcom r Division pute Pe riphe Division ral Budge d variablecost pe hour in there vant range te r le Actual usagein 2007 hours Microcom r Division pute Pe riphe Equipm nt Division ral e $3,000,000 18,750 hours 8,000 hours 4,000 hours $200 pe hour r use d 9,000 hours 3,000 hours 15-17 Allocation Basis Use Demand for or Usage of Services Single Rate – budgeted rate and actual hours Dual rate Variable cost and actual hours Fixed cost based on budgeted rate and budgeted hours Use Supply of Computer Services Single Rate – budgeted rate and actual hours Dual rate Variable cost and actual hours Fixed cost based on budgeted rate and budgeted hours 15-18 Single Rate Method (based on expected demand for or usage of services) Computer Department 12,000 $3,000,000 $ 2,400,000 $ 5,400,000 $450 $4,050,000 1,350,000 Budgeted Usage in Hours Budgeted Fixed Cost Budgeted Variable Cost Budgeted Total Cost Pool Budgeted total rate per hour Allocation on basis of Actual Hours Microcomputer Division 9,000 x $450 Peripheral Division 3,000 x $450 Costs are allocated based on Budgeted Rate and Actual hours used. Dual Allocation (based on demand for or usage of services) Microcomputer Peripheral Department Department Variable cost allocation: $200 × 9,000 hours used $ 1,800,000 $200 × 3,000 hours used Fixed cost allocation $250 x 8,000 (budget) hours 2,000,000 $250 x 4,000 (budget) hours Total allocated cost $ 3,800,000 15-19 $ 600,000 1,000,000 $ 1,600,000 Variable costs are allocated based on actual hours used. Variable costs are allocated based on actual hours used. Fixed costs are allocated based on budgeted fixed costs per Fixed costs are allocated based on budgeted fixed costs per hour and budgeted number of hours for each division.. hour and budgeted number of hours for each division 15-20 Single Rate Method (based on Supply of Capacity) Practical Capacity in Hours Budgeted Fixed Cost Budgeted Fixed Cost Rate per hour Budgeted Variable Cost per hour Budgeted total rate per hour Allocation on basis of Actual Hours Microcomputer Division 9,000 x $360 Peripheral Division 3,000 x $360 Fixed Cost of Unused Capacity 6,750 x $160 18,750 $3,000,000 $ 160 $ 200 $360 $3,240,000 1,080,000 $ 1,080,000 Costs are allocated based on Budgeted Rate (using practical capacity) and Actual hours used. Dual Allocation (based on Supply of Capacity) Microcomputer Peripheral Department Department Variable cost allocation: $200 × 9,000 hours used $ 1,800,000 $200 × 3,000 hours used Fixed cost allocation $160 x 8,000 (budget) hours 1,280,000 $160 x 4,000 (budget) hours Total allocated cost $ 3,080,000 15-21 $ 600,000 640,000 $ 1,240,000 Variable costs are allocated based on actual hours used. Fixed costs are allocated based on practical capacity and budgeted number of hours for each division. There is $1,080,000 of Fixed Costs of unused capacity (6,750 15-22 15-23 Learning Objective Three Allocate Multiple Support-department costs using the direct method, step-down method, and the reciprocal method 15-24 Service and Production Department Cost Allocation Production Departments Carry out the central purposes of an organization. Service Departments Provide support that facilitates the activities of user departments. 15-25 Issues 15-26 Service and Production Department Cost Allocation Service Department (Cafeteria) Direct and Indirect Costs Service Department (Accounting) Service Department (Personnel) Production Department (Machining) Production Department (Assembly) The Product 15-27 Service and Production Department Cost Allocation First Phase: Trace direct costs and allocate indirect costs to all departments Service Department (Cafeteria) Direct and Indirect Costs Service Department (Accounting) Service Department (Personnel) Production Department (Machining) Production Department (Assembly) The Product 15-28 Service and Production Department Cost Allocation Service Department (Cafeteria) Direct and Indirect Costs Service Department (Accounting) Service Department (Personnel) Second Phase: Allocate service department costs to production departments. Production Department (Machining) Production Department (Assembly) The Product 15-29 Service and Production Department Cost Allocation Service Department (Cafeteria) Direct and Indirect Costs Service Department (Accounting) Service Department (Personnel) Production Department (Machining) Production Department (Assembly) The Product Third Phase: Allocate production department overhead costs to products. 15-30 Trace Direct Cost and Allocate Indirect Costs Direct Costs Indirect Cost MH % Cafeteria $320,000 40% Custodial $70,000 20% Assembly Machining Total $370,000 $690,000 $1,450,000 $100,000 30% 10% Use MH % to allocate Indirect Costs to the departments 15-31 Trace Direct Cost and Allocate Indirect Costs Cafeteria Custodial Assembly Machining Total Direct Costs $320,000 $70,000 $370,000 $690,000 $1,450,000 Allocation 40,000 20000 30000 10000 $100,000 Total 360,000 $90,000 $400,000 $700,000 $1,550,000 MH % 40% 20% 30% 10% 15-32 Methods of Allocating Service Department Costs Problem Allocating costs when service departments provide services to each other Solutions Direct method Step method Reciprocal method Allocating Support Departments Costs 15-33 Direct method: Allocates support department costs to operating departments only. Step-down (sequential allocation) method: Allocates support department costs to other support departments and to operating departments. Reciprocal allocation method: Allocates costs by services provided among all support departments. 15-34 Direct Method Service Department (Cafeteria) Production Department (Machining) Cost of services between service departments are ignored and all costs are allocated directly to user departments. Service Department (Custodial) Production Department (Assembly) 15-35 Direct Method Example Service Departments Cafeteria Departmental costs before allocation Number of employees Square feet occupied $ 360,000 15 5,000 Custodial $ 90,000 10 2,000 Production Departments Machining $ 400,000 20 25,000 Assembly $ 700,000 30 50,000 Service Department Cafeteria Custodial Allocation Base Number of employees Square feet occupied 15-36 Direct Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 ? ? ? Custodial $ 90,000 ? ? ? Production Departments Machining $ 400,000 ? ? ? Assembly $ 700,000 ? ? ? 15-37 Direct Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (360,000) ? ? Custodial $ 90,000 0 ? ? Production Departments Machining $ 400,000 144,000 ? ? Assembly $ 700,000 ? ? ? 20 $360,000 × = $144,000 20 + 30 Allocation base: Number of employees 15-38 Direct Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (360,000) ? ? Custodial $ 90,000 0 ? ? Production Departments Machining $ 400,000 144,000 ? ? Assembly $ 700,000 216,000 ? ? $360,000 × 30 = $216,000 20 + 30 Allocation base: Number of employees 15-39 Direct Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (360,000) 0 0 $ Custodial $ 90,000 0 (90,000) 0 Production Departments Machining $ 400,000 144,000 30,000 $ 574,000 Assembly $ 700,000 216,000 ? ? 25,000 $90,000 × 25,000 + 50,000 = $30,000 Allocation base: Square feet occupied 15-40 Direct Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (360,000) 0 0 $ Custodial $ 90,000 0 (90,000) 0 Production Departments Machining $ 400,000 144,000 30,000 $ 574,000 Assembly $ 700,000 216,000 60,000 $ 976,000 50,000 $90,000 × 25,000 + 50,000 = $60,000 Allocation base: Square feet occupied 15-41 Step Method Service department costs are allocated to other service departments and to production departments, usually starting with the service department that provides the greatest amount of service to other departments. Service Department (Cafeteria) Production Department (Machining) Service Department (Custodial) Production Department (Assembly) 15-42 Step Method Service Department (Cafeteria) Production Department (Machining) Once a service department’s costs are allocated, other service department costs are not allocated back to it. Service Department (Custodial) Production Department (Assembly) 15-43 Step Method Service Department (Cafeteria) Production Department (Machining) Custodial will have a new total to allocate to production departments: its own costs plus those costs allocated from the cafeteria. Service Department (Custodial) Production Department (Assembly) 15-44 Step Method Example We will use the same data used in the direct method example. Service Departments Cafeteria Departmental costs before allocation Number of employees Square feet occupied $ 360,000 15 5,000 Custodial $ 90,000 10 2,000 Production Departments Machining $ 400,000 20 25,000 Assembly $ 700,000 30 50,000 Service Department Cafeteria Custodial Allocation Base Number of employees Square feet occupied 15-45 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 ? ? ? Custodial $ 90,000 ? ? ? Production Departments Machining $ 400,000 ? ? ? Assembly $ 700,000 ? ? ? 15-46 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (360,000) ? ? Custodial $ 90,000 60,000 ? ? Production Departments Machining $ 400,000 ? ? ? Assembly $ 700,000 ? ? ? 10 $360,000 × 10 + 20 + 30 = $60,000 Allocation base: Number of employees 15-47 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (360,000) ? ? Custodial $ 90,000 60,000 ? ? Production Departments Machining $ 400,000 120,000 ? ? Assembly $ 700,000 ? ? ? 20 $360,000 × 10 + 20 + 30 = $120,000 Allocation base: Number of employees 15-48 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (360,000) ? ? Custodial $ 90,000 60,000 ? ? Production Departments Machining $ 400,000 120,000 ? ? Assembly $ 700,000 180,000 ? ? 30 $360,000 × 10 + 20 + 30 = $180,000 Allocation base: Number of employees 15-49 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (360,000) ? ? Custodial $ 90,000 60,000 (150,000) $ 0 Production Departments Machining $ 400,000 120,000 ? ? Assembly $ 700,000 180,000 ? ? New total = $90,000 original custodial cost plus $60,000 allocated from the cafeteria. 15-50 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (360,000) 0 0 Custodial $ 90,000 60,000 (150,000) $ 0 Production Departments Machining $ 400,000 120,000 50,000 $ 570,000 Assembly $ 700,000 180,000 ? ? $150,000 × 25,000 25,000 + 50,000 = $50,000 Allocation base: Square feet occupied 15-51 Step Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (360,000) 0 0 Custodial $ 90,000 60,000 (150,000) $ 0 Production Departments Machining $ 400,000 120,000 50,000 $ 570,000 Assembly $ 700,000 180,000 100,000 $ 980,000 50,000 $150,000 × 25,000 + 50,000 = $100,000 Allocation base: Square feet occupied 15-52 Reciprocal Method Service Department (Cafeteria) Production Department (Machining) Interdepartmental services are given full recognition rather than partial recognition as with the step method. Service Department (Custodial) Production Department (Assembly) 15-53 Reciprocal Method Example We will use the same data used in the previous examples. Service Departments Cafeteria Departmental costs before allocation Number of employees Square feet occupied $ 360,000 15 5,000 Custodial $ 90,000 10 2,000 Production Departments Machining $ 400,000 20 25,000 Assembly $ 700,000 30 50,000 S ervice Department Cafeteria Custodial Allocation Base Number of employees Square feet occupied 15-54 Reciprocal Method The Custodial Department receives: 10 10 + 20 + 30 = 1 of Cafeteria costs. 6 The Cafeteria Department receives: 5,000 5,000 + 25,000 + 50,000 1 = of Custodial costs. 16 The total cost of each service department is equal to: Direct costs of that department + Costs allocated to that department 15-55 Reciprocal Method In equation form: Cu = $90,000 + and 1 6 Ca 1 Ca = $360,000 + 16 Cu Cu = Total costs of Custodial Department Ca = Total costs of Cafeteria Department 15-56 Reciprocal Method In equation form: Cu = $90,000 + and 1 6 Ca 1 Ca = $360,000 + 16 Cu Two equations and two unknowns are solved by substitution: 1 1 Ca = $360,000 + ($90,000 + Ca) 16 6 Ca = $369,474 (rounded) and 1 Cu = $90,000 + ($369,474) = $151,579 6 15-57 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 ? ? ? Custodial $ 90,000 ? ? ? Production Departments Machining $ 400,000 ? ? ? Assembly $ 700,000 ? ? ? 15-58 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (369,474) ? ? Custodial $ 90,000 61,579 ? ? Production Departments Machining $ 400,000 ? ? ? Assembly $ 700,000 ? ? ? 10 $369,474 × 10 + 20 + 30 = $61,579 Allocation base: Number of employees 15-59 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (369,474) ? ? Custodial $ 90,000 61,579 ? ? Production Departments Machining $ 400,000 123,158 ? ? Assembly $ 700,000 ? ? ? 20 $369,474 × 10 + 20 + 30 = $123,158 Allocation base: Number of employees 15-60 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ 360,000 (369,474) ? ? Custodial $ 90,000 61,579 ? ? Production Departments Machining $ 400,000 123,158 ? ? Assembly $ 700,000 184,737 ? ? 30 $369,474 × 10 + 20 + 30 = $184,737 Allocation base: Number of employees 15-61 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (369,474) 9,474 0 Custodial $ 90,000 61,579 (151,579) $ 0 Production Departments Machining $ 400,000 123,158 ? ? Assembly $ 700,000 184,737 ? ? $151,579 × 5,000 5,000 + 25,000 + 50,000 = $9,474 (rounded) Allocation base: Square feet occupied 15-62 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (369,474) 9,474 0 Custodial $ 90,000 61,579 (151,579) $ 0 Production Departments Machining $ 400,000 123,158 47,368 $ 570,526 Assembly $ 700,000 184,737 ? ? $151,579 × 25,000 5,000 + 25,000 + 50,000 = $47,368 (rounded) Allocation base: Square feet occupied 15-63 Reciprocal Method Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation $ $ 360,000 (369,474) 9,474 0 Custodial $ 90,000 61,579 (151,579) $ 0 Production Departments Machining $ 400,000 123,158 47,368 $ 570,526 Assembly $ 700,000 184,737 94,737 $ 979,474 $151,579 × 50,000 5,000 + 25,000 + 50,000 = $94,737 (rounded) Allocation base: Square feet occupied 15-64 Comparison of Methods Totals after allocation Method Direct Step Reciprocal Machining Department $ 574,000 570,000 570,526 Assembly Department $ 976,000 980,000 979,474 15-65 Comparison of Methods The reciprocal method is superior because: It considers all services provided to other service departments. The total cost of operating a service department is computed. The reciprocal method requires the use of matrix algebra with three or more service departments. 15-66 Learning Objective Four Allocate Common Cost using the stand-alone method and the incremental method 15-67 Allocating Common Costs Common Cost – the cost of operating a facility, activity, or like cost object that is shared by two or more users at a lower cost than the individual cost of the activity to each user 15-68 Allocating Common Costs Two methods for allocating common cost are: 1. Stand-alone cost allocation method 2. Incremental cost allocation method 15-69 Methods of Allocating Common Costs Stand-Alone Cost-Allocation Method – uses information pertaining to each user of a cost object as a separate entity to determine the cost-allocation weights Individual costs are added together and allocation percentages are calculated from the whole, and applied to the common cost 15-70 Methods of Allocating Common Costs I ncre e C m ntal ost-Allocation Me thod ranks theindividual use of a cost rs obje in theorde of use m re ct r rs ost sponsiblefor a com on cost and the use m ns t his ranking to allocatethecost am theuse ong rs Thefirst ranke use is thePrim Use and is allocate costs up to thecosts of the dr ary r d prim use as a stand-aloneuse (typically ge thehighe allocation of thecom on ary r r ts st m costs) These cond ranke use is theFirst I ncre e Use and is allocate theadditional dr m ntal r d cost that arise fromtwo use rathe than one s rs r S que use handle in thesam m r as these ubse nt rs d e anne cond ranke use dr 15-71 Stand-Alone Example A consultant in Tampa is planning to go to Chicago and meet with a Chicago client. The round-trip Tampa/Chicago/Tampa airfare costs $540. The consultant is also planning to attend a business meeting with a North Carolina client in Durham. 15-72 Stand-Alone Example The round-trip Tampa/Durham/Tampa airfare costs $360. The consultant decides to combine the two trips into a Tampa/Durham/Chicago/Tampa itinerary that will cost $760. 15-73 Stand-Alone Example How much should the consultant charge to the North Carolina client? $360 ÷ ($360 + $540) = .40 .40 × $760 = $304 How much to the international client? $760 – $304 = $456 15-74 Incremental Cost Example Assume that the business meeting in Chicago is viewed as the primary party. What would be the cost allocation? Chicago client (primary) $540 Durham client (incremental) $760 – $540 = $220 15-75 Incremental Cost Example Now assume that the business meeting in Durham is viewed as the primary party. What would be the cost allocation? Durham client (primary) $360 Chicago client (incremental) $760 – $360 = $400 15-76 Incremental Cost (SHAPLEY VALUE) The Shapley Value method allocates to each employer, the average of the costs allocated as the primary party and as the incremental party 15-77 Shapley Value Totals after allocation Party Primary I ncremental Shapley Value $ Chicago 540 400 470 $ Durham 360 220 290 15-78 Learning Objective Six Understand how bundling of products gives rise to revenue-allocation issues. 15-79 Revenues and Bundled Products A bundled product is a package of two or more products (or services) sold for a single price. Bundled product sales are also referred to as “suite sales.” The individual components of the bundle also may be sold as separate items at their own “stand-alone” prices. 15-80 Revenues and Bundled Products What businesses provide bundled products? Banks Checking Safety deposit boxes Investment advisory Hotels Lodging Food and beverage services Recreation Tours Transportation Lodging Guides 15-81 Learning Objective 6 Allocate the revenues of a bundled package to the individual products in that package. 15-82 Revenue Allocation Methods English Languages Institute buys English language software programs locally and then sells them in Mexico and Central America. English sells the following programs: Grammar, Translation, and Composition These programs are offered stand-alone or in a bundle. 15-83 Revenue Allocation Methods Stand-alone Grammar Translation Composition Price $255 $ 85 $185 Purchasing these software programs costs English the following: Grammar $180 Translation $ 45 Composition $ 95 15-84 Revenue Allocation Methods Bundle (Suites) Grammar + Translation Grammar + Composition Grammar + Translation + Composition Price $290 $350 $410 15-85 Revenue Allocation Methods The two main revenue allocation methods are: 1. The stand-alone method 2. The incremental method Stand-Alone Revenue Allocation Method There are four types of weights for the stand-alone revenue allocation method. 1. Selling prices 3. Physical units 2. Unit costs 4. Stand-alone product revenues 15-86 Stand-Alone Revenue Allocation Method Consider the Grammar and Translation suite, which sells for $290. How much weight should English Languages Institute assign to each item? 15-87 Stand-Alone Revenue Allocation Method Selling prices: The individual selling prices are $255 for Grammar and $85 for Translation. Grammar: $255 ÷ $340 = 0.75, $290 × 0.75 = $217.50 Translation: $85 ÷ $340 = 0.25, $290 × 0.25 = $72.50 15-88 Stand-Alone Revenue Allocation Method Unit costs: This method uses the costs of the individual products to determine the weights for the revenue allocations. Grammar: $180 ÷ $225 = 0.80, $290 × 0.80 = $232 Translation: $45 ÷ $225 = 0.20, $290 × 0.20 = $58 15-89 Stand-Alone Revenue Allocation Method Physical units: This method gives each product unit in the suite the same weight when allocating suite revenue to individual products. With two products in the suite, each product is allocated 50% of suite revenues. 1 ÷ (1 + 1) = 0.50 $290 × 0.50 = $145 15-90 Stand-Alone Revenue Allocation Method Stand-alone product revenues: This method captures the quantity of each product sold as well as their selling prices. Assume that the stand-alone revenues in 2003 are Grammar $734,400, Translation $81,600, and Composition $133,200. What are the weights for the Grammar and Translation suite? 15-91 Stand-Alone Revenue Allocation Method Grammar: $734,400 ÷ $816,000 = 0.90, $290 × 0.90 = $261 Translation: $81,600 ÷ $816,000 = 0.10, $290 × 0.10 = $29 15-92 Stand-Alone Revenue Allocation Method 15-93 Revenue Allocation Weights Grammar Translation Selling prices $217.50 $ 72.50 Unit costs 232.00 58.00 Physical units 145.00 145.00 Stand-alone product revenues 261.00 29.00 Incremental Revenue Allocation Method The first-ranked product is termed the primary product in the bundle. The second-ranked product is termed the first incremental product. The third-ranked product is the second incremental product, and so on… 15-94 Incremental Revenue Allocation Method Assume that Grammar is designated as the primary product. If the suite selling price exceeds the standalone price of the primary product, the primary product is allocated 100% of its stand-alone revenue. 15-95 Incremental Revenue Allocation Method Grammar and Translation suite selling price = $290 Allocated to Grammar: $255 Remaining to be allocated: ($290 – $255) = $35 Allocated to Translation: $35 15-96 ...
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This note was uploaded on 04/08/2009 for the course ACG 3482C taught by Professor Tinaker during the Spring '09 term at University of Florida.

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ch15 cost accounting allocations - Chapter 15 Cost...

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