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ch15 cost accounting allocations

ch15 cost accounting allocations - Chapter 15 Cost...

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Chapter 15 Cost Allocation: Service Departments, Common Costs and Revenues
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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?
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15-3 Learning Objectives 1. Identify the strategic role of cost allocation 2. Distinguish the single-rate method from the dual-rate method 3. Allocate support-department costs using the direct method, step-down method, and the reciprocal method 4. Allocate common costs using the stand-alone method and the incremental method 5. Allocate the revenues of a bundled product to the individual products in that bundle
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15-4 Learning Objective One Identify the strategic role of cost allocation
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Process of Cost Allocation
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15-6 Purposes of Cost Allocation
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15-7 Cost Allocations and Contracting The US government reimburses most contractors in either of two main ways: 1. The contractor is paid a set price without analysis of actual contract cost data 2. 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)
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15-8 Learning Objective Two Distinguish the single-rate method from the dual-rate method
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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
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15-10 Single-Rate and Dual-Rate Methods The single -rate cost allocation method pools together all costs in a cost pool. 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.
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15-11 Allocation Bases Under either method, allocation of service department costs can be based on one of the three following scenarios: 1. Budgeted overhead rate and budgeted hours 1. Budgeted overhead rate and actual hours 1. Actual overhead rateand actual hours
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15-12 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: Allocate maintenance costs to the two operating departments.
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