Chapter 7 slides - 11-1Service Department Cost...

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Unformatted text preview: 11-1Service Department Cost AllocationLO1Explain why service costs are allocated.Department that uses the functions of service departments.Department that provides service to other subunits in the organization.Cost center whose costs are charged to other departments in the organization.Service DepartmentUser DepartmentIntermediate Cost CenterCost center, such as a production or marketing department, whose costs are not allocated to another cost center.Final Cost Center11-2Service Department Cost Allocation, Continued. . .Product costingCross-department monitoringWhy allocate service department costs?11-3Service Department Cost Allocation, Continued. . .Carlyle Coal Company (CCC)Service Department: Information Systems (S1)Service and User Departments ofService Department: Administration (S2)User Department: Hilltop Mine (P1)User Department: Pacific Mine (P2)11-4Service Department Cost Allocation, Continued. . .Carlyle Coal CompanyInformation Systems (S1)Total S1 Costs$800,000Allocation Base: Computer HoursUser DepartmentNumber of Hours UsedPercent of TotalAdministration (S2)100,00050%Hilltop Mine (P1)20,00010%Pacific Mine (P2)80,00040%Totals200,000100%11-5Service Department Cost Allocation, Continued. . .Carlyle Coal CompanyAdministration (S2)Total S2 Costs$5,000,000Allocation Base: EmployeesUser DepartmentEmployeesPercent of TotalInformation Systems (S1)2,00020%Hilltop Mine (P1)5,00050%Pacific Mine (P2)3,00030%Totals10,000100%Service Department Cost Allocation, Continued. . .11-6Direct MethodLO2Allocate service department costs using the direct method.Charges costs of service departments to user departments without making allocations between or among service departments.Direct Method:S1S2P1P211-7Cost Allocation: Direct MethodService Department Cost AllocationService DepartmentDirect CostP1P2TotalS1800,000$ 20.0%a80.0%100.0%S25,000,00062.5%b37.5%100.0%Percent Allocable toa 2 0 % = 2 0 ,0 0 0 h o u rs /(2 0 ,0 0 0 h o u rs + 8 0 ,0 0 0 h o u rs )b 6 2 .5 % = 5 ,0 0 0 e m p lo ye e s /(5 ,0 0 0 e m p lo ye e s + 3 ,0 0 0 e m p lo ye e s )11-8Cost Allocation: Direct Method, Continued. . .Service Department Cost AllocationService DepartmentDirect CostP1P2TotalS1800,000$ 20.0%a80.0%100.0%S25,000,00062.5%b37.5%100.0%Percent Allocable toa 20% = 20,000 hours/(20,000 hours + 80,000 hours)b 62.5% = 5,000 employees/(5,000 employees + 3,000 employees)S1800,000$ 160,000$ c640,000$ 800,000$ S25,000,0003,125,000d1,875,0005,000,000Total allocated5,800,000$ 3,285,000$ 2,515,000$ 5,800,000$c $160,000 = 20% x $800,000d $3,125,000 = 62.5% x $5,000,00011-9Step MethodLO3Allocate service department costs using the step method....
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Chapter 7 slides - 11-1Service Department Cost...

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