ch08 - Chapter 8 Measuring and Assigning Support Department...

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Chapter 8 Measuring and Assigning Support Department Costs LEARNING OBJECTIVES Chapter 8 addresses the following questions: Q1 What are support departments, and why are their costs allocated to other departments? Q2 What process is used to allocate support department costs? Q3 How is the direct method used to allocate support costs to operating departments? Q4 How is the step-down method used to allocate support costs to operating departments? Q5 How is the reciprocal method used to allocate support costs to operating departments? Q6 What is the difference between single- and dual-rate allocations? Q7 What are the limitations of support cost allocations, and how can the quality of information be improved? These learning questions (Q1 through Q7) are cross-referenced in the textbook to individual exercises and problems. COMPLEXITY SYMBOLS The textbook uses a coding system to identify the complexity of individual requirements in the exercises and problems. Questions Having a Single Correct Answer: No Symbol This question requires students to recall or apply knowledge as shown in the textbook. e This question requires students to extend knowledge beyond the applications shown in the textbook. Open-ended questions are coded according to the skills described in Steps for Better Thinking (Exhibit 1.10): Step 1 skills (Identifying) Step 2 skills (Exploring) Step 3 skills (Prioritizing) Step 4 skills (Envisioning)
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8-2 Cost Management QUESTIONS 8.1 Similarities: All of the methods allocate support department costs to operating departments All of the methods rely on allocation bases to assign costs of support departments to operating departments. All of the methods result in a total allocated cost per unit All of the methods use cost pools, and those are usually departments. Differences: Direct method ignores all interactions among support departments. The step-down method takes into account some of the interactions among support departments. The reciprocal method takes into account all of the interactions among support departments. 8.2 Support department costs are direct costs of the department, but indirect costs when allocated to other departments. Manufacturing overhead is a direct cost of the production process but it becomes an indirect cost when it is allocated to units. 8.3 Management's objectives should be the determining factor, tempered by the availability of the data and the cost of performing the allocation. For example, if the primary purpose is cost control, a method that recognizes interdepartmental relationships is appropriate. If the firm has a computer and appropriate software, the reciprocal allocation method is preferred. If the primary purpose is product costing and the firm has a manual system, the direct method may be preferred.
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This note was uploaded on 02/28/2010 for the course SOM aim taught by Professor Are during the Spring '10 term at Texas El Paso.

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ch08 - Chapter 8 Measuring and Assigning Support Department...

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