Acct+315+Chapter+15+Class

Acct+315+Chapter+15+Class - Chapter15...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
    Chapter 15 Allocation of Support-Department  Costs, Common Costs and  Revenues
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    Question? Allocate both fixed costs and variable  costs or only variable costs? If allocate both – how should they be  allocated?  Use the same allocation  method for both types of costs? Most companies opt to allocation both.
Background image of page 2
    Allocation of Support Dept  Costs to Operating Dept Support Department – also called  service department, supports activities  of the company Examples: accounting, information  services, technical support Operating Department – also called  production department, directly adds  value to product or service
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    Allocation Methods Single rate method  Dual rate method
Background image of page 4
    Single Rate Method Single-Rate Method – allocates costs in each  cost pool (service department) to cost objects  (production departments) using the same rate  per unit of a single allocation base No distinction is made between fixed and variable  costs in this method  Single-rate method is simple to implement,  but treats fixed costs in a manner similar to  variable costs
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    Dual Rate Method Dual-Rate Method – segregates costs within  each cost pool into two segments: a variable- cost pool and a fixed-cost pool.   Each pool uses a different cost-allocation  base. Dual-rate method treats fixed and variable  costs more realistically, but is more complex  to implement.
Background image of page 6
    Allocation Bases Under either method, allocation of support  costs can be based on one of the three  following scenarios: 1. Budgeted overhead rate and budgeted hours 2. Budgeted overhead rate and actual hours 3. Actual overhead rate and actual hours Choosing between actual and budgeted  rates: budgeted is known at the beginning of  the period, while actual will not be known with  certainty until the end of the period.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    Another Big Question???? Allocate support department costs using  budgeted costs or actual? 1. Reduced uncertainty by  providing cost allocation rates  in advance 2. Improved ability to determine  the appropriate amount of  support dept services 3. Motive support dept to hold  down costs since cost  overruns will Not be passed on 1. Difficulties in accurately estimating  usage and costs in advance 2. Penalizing support dept for  uncontrollable cost overruns 3. Increased likelihood the dept  managers may deliberately  underestimate usage in order to  reduce amount of support costs  allocated Advantages of  Budgeted Costs Disadvantages of  Budgeted Costs
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

Acct+315+Chapter+15+Class - Chapter15...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online