Ch15 - CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS...

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CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS, COMMON COSTS, AND REVENUES 15-16 (20 min.) Single-rate versus dual-rate methods, support department. Bases available (kilowatt hours): Rockford Peoria Hammond Kankakee Total Practical capacity Expected monthly usage 10,000 8,000 20,000 9,000 12,000 7,000 8,000 6,000 50,000 30,000 1a. Single-rate method based on practical capacity: Total costs in pool = $6,000 + $9,000 = $15,000 Practical capacity = 50,000 kilowatt hours Allocation rate = $15,000 ÷ 50,000 = $0.30 per hour of capacity Rockford Peoria Hammond Kankakee Total Practical capacity in hours Costs allocated at $0.30 per hour 10,000 $3,000 20,000 $6,000 12,000 $3,600 8,000 $2,400 50,000 $15,000 1b. Single-rate method based on expected monthly usage: Total costs in pool = $6,000 + $9,000 = $15,000 Expected usage = 30,000 kilowatt hours Allocation rate = $15,000 ÷ 30,000 = $0.50 per hour of expected usage Rockford Peoria Hammond Kankakee Total Expected monthly usage in hours Costs allocated at $0.50 per hour 8,000 $4,000 9,000 $4,500 7,000 $3,500 6,000 $3,000 30,000 $15,000 2. Variable-Cost Pool: Total costs in pool = $6,000 Expected usage = 30,000 kilowatt hours Allocation rate = $6,000 ÷ 30,000 = $0.20 per hour of expected usage Fixed-Cost Pool: Total costs in pool = $9,000 Practical capacity = 50,000 kilowatt hours Allocation rate = $9,000 ÷ 50,000 = $0.18 per hour of capacity Rockford Peoria Hammond Kankakee Total Variable-cost pool $0.20 × 8,000; 9,000; 7,000, 6,000 Fixed-cost pool $0.18 × 10,000; 20,000; 12,000, 8,000 Total $1,600 1,800 $3,400 $1,800 3,600 $5,400 $1,400 2,160 $3,560 $1,200 1,440 $2,640 $ 6,000 9,000 $15,000 The dual-rate method permits a more refined allocation of the power department costs; it permits the use of different allocation bases for different cost pools. The fixed costs result from decisions
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most likely associated with the practical capacity level. The variable costs result from decisions most likely associated with monthly usage. 15-19 (30 min.) Support department cost allocation; direct and step-down methods. 1. AS IS GOVT CORP a. Direct method costs $600,000 $2,400,000 Alloc. of AS costs (40/75, 35/75) (600,000) $ 320,000 $ 280,000 Alloc. of IS costs (30/90, 60/90) (2,400,000 ) 800,000 1,600,000 $ 0 $ 0 $1,120,000 $1,880,000 b. Step-down (AS first) costs $600,000 $2,400,000 Alloc. of AS costs (0.25, 0.40, 0.35) (600,000) 150,000 $ 240,000 $ 210,000 Alloc. of IS costs (30/90, 60/90) (2,550,000 ) 850,000 1,700,000 $ 0 $ 0 $1,090,000 $1,910,000 c. Step-down (IS first) costs $600,000 $2,400,000 Alloc. of IS costs (0.10, 0.30, 0.60) 240,000 (2,400,000) $ 720,000 $1,440,000 Alloc. of AS costs (40/75, 35/75) (840,000 ) 448,000 392,000 $ 0 $ 0 $1,168,000 $1,832,000 2. GOVT CORP Direct method $1,120,000 $1,880,000 Step-down (AS first) 1,090,000 1,910,000 Step-down (IS first) 1,168,000 1,832,000 The direct method ignores any services to other support departments. The step-down method partially recognizes services to other support departments. The information systems support
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This note was uploaded on 03/06/2011 for the course ECON 435 taught by Professor Galven during the Spring '11 term at Ill. Chicago.

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Ch15 - CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS...

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