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ch 15 slides - 15 - 1 Allocation of Support Department...

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Unformatted text preview: 15 - 1 Allocation of Support Department Costs, Common Costs and Revenues Chapter 15 15 - 2 The single-rate vs. the dual-rate cost-allocation method. 15 - 3 Single-Rate and Dual-Rate Methods The single-rate cost allocation method pools together all costs (Variable + Fixed) in one cost pool. The dual-rate cost allocation method classifies costs in each cost pool into two cost pools: Variable cost pool (actual usage) Fixed cost cost pool (budgeted usage) 15 - 4 How the uncertainty user managers face is affected by the choice between budgeted and actual cost-allocation rates. 15 - 5 Budgeted versus Actual Rates Budgeted rates let the user department know in advance the cost rates they will be charged. During the budget period, the supplier department, not the user departments, bears the risk of any unfavorable cost variances. Why? 15 - 6 Budgeted versus Actual Rates Because the user departments do not pay for any costs that exceed the budgeted rates (borne by supplier dept.) When actual rates are used for cost allocation, managers do not know the rates to be used until the end of the budget period. 15 - 7 Budgeted versus Actual Usage Allocation Bases Organizations commit to infrastructure costs on the basis of a long-run planning horizon. The use of budgeted usage to allocate these fixed costs is consistent with the long-run horizon. 15 - 8 Allocating support departments costs using the: Direct Step-down Reciprocal methods. 15 - 9 Allocating Support Departments Costs An operating department (a production department in manufacturing companies) adds value to a product or service. A support department (service department) provides the services that assist other operating and support departments in the organization. 15 - 10 Allocating Support Departments Costs Direct method: Allocates support department costs to operating departments only. Step-down (sequential allocation) method: Allocates support department costs to other support departments and to operating departments. Reciprocal allocation method: Allocates costs by services provided among all support departments. 15 - 11 Direct Allocation Allocates support costs directly to operating departments Assembly Polishing Packing HR Legal IM Payroll SUPPORT DEPARTMENTS OPERATING DEPARTMENTS 15 - 12 Step-down Allocation Allocates support costs to other support departments , then to operating departments departments Assembly Polishing Packing HR Legal IM Payroll SUPPORT DEPARTMENTS OPERATING DEPARTMENTS 15 - 13 Reciprocal Allocation Allocates support costs to all departments, explicitly including mutual services provided between support departments , then to operating departments. Assembly Polishing Packing HR Legal IM Payroll This method fully incorporates interdepartmental relationships into support department cost allocations SUPPORT DEPARTMENTS OPERATING DEPARTMENTS 15 - 14 Allocating Support Departments Costs The Canton Division of Smith Corporation has 2 operating departments and 2 support departments....
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ch 15 slides - 15 - 1 Allocation of Support Department...

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