CN15HO - Chapter 15 Allocation of: Support Department...

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2006 UofW Business School Accounting 311 L.DuCharme 1 Allocation of: Support Department Costs, Common Costs, and Revenues Chapter 15
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2006 UofW Business School Accounting 311 L.DuCharme 2 Operating vs. Support Departments 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.
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2006 UofW Business School Accounting 311 L.DuCharme 3 Learning Objective 1 Differentiate the single-rate from the dual-rate cost-allocation method.
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2006 UofW Business School Accounting 311 L.DuCharme 4 Single-Rate and Dual-Rate Methods The single -rate cost allocation method pools together all costs in a cost pool. The dual -rate cost allocation method classifies costs in each cost pool into two cost pools – a variable-cost cost pool and a fixed-cost cost pool.
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2006 UofW Business School Accounting 311 L.DuCharme 5 Learning Objective 2 Understand how the uncertainty managers face is affected by the choice between budgeted and actual cost- allocation rates.
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2006 UofW Business School Accounting 311 L.DuCharme 6 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?
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2006 UofW Business School Accounting 311 L.DuCharme 7 Budgeted versus Actual Rates – because the user departments do not pay for any costs that exceed the budgeted rates When actual rates are used for cost allocation, managers do not know the rates to be used until the end of the budget period.
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2006 UofW Business School Accounting 311 L.DuCharme 8 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.
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2006 UofW Business School Accounting 311 L.DuCharme 9 Learning Objective 3 Allocate support department costs using the: (1) direct, (2) step-down, and (3) reciprocal methods.
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2006 UofW Business School Accounting 311 L.DuCharme 10 Allocating Support Departments Costs Direct method: Allocates support department costs to operating departments only. Step-down
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This note was uploaded on 04/07/2008 for the course ACCTG 311 taught by Professor Ducharme during the Spring '08 term at University of Washington.

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CN15HO - Chapter 15 Allocation of: Support Department...

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