ACCT 4210 (Fall 2013) - Week 12 (Ch 15)

Departments machining assembly example direct method

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Unformatted text preview: e (Direct Method) Support Departments Operating Departments Cafeteria Departmental costs before allocation Number of employees Square feet occupied Custodial Machining Assembly $360,000 15 5,000 $ 90,000 10 2,000 $ 400,000 20 25,000 $ 700,000 30 50,000 Support Departments Operating Departments Cafeteria Departmental costs before allocation (BA) Cafeteria allocation (# employees) Custodial allocation (Sq feet occupied) Total after allocation (AA) 12 Custodial Machining Assembly $ 360,000 $ (360,000) $0 $ - $ 90,000 $0 $ (90,000) $ - $ 400,000 $ 144,000^ 40%* $ 30,000 33.33% $ 574,000 $ 700,000 $ 216,000 60% $ 60,000 66.67% $ 976,000 * 20/(20+30) ^ 360,000*[20/(20+30)] or 40% Step-Down Method Once a support department’s costs are allocated, other service department costs are not allocated back to it. • Custodial will have a new total to allocate to production departments: its own costs plus those costs 13 allocated from the cafeteria. • Support department (cafeteria) Operating department (machining) Support department (custodial) Operating department (assembly) Costs of Cafeteria are allocated first so CafeBA = CafeAA 1. CafeAA (which is CaféBA) is allocated to Cust, Mach & Assem 2. CustAA is then allocated to Mach & Assem Step-Down Method The direct method does not consider the interactions among support departments. The step-down method recognizes some of the interactions. Step-Down Method 1. List the order of support department costs to allocate. Order of cost allocation: Most general d e p a rt m e n t Le a s t g e n e ra l d e p a rt m e n t Costs of the support department that provides the highest percentage of its total service or the highest dollar amount of services to other support departments are allocated first 14 2. Allocate costs to operating departments and Example (Step Method) Support Departments Operating Departments Cafeteria Departmental costs before allocation Number of employees Square feet occupied Custodial Machining Assembly $360,000 15 5,000 $ 90,000 10 2,000 $ 400,000 20 25,000 $ 700,000 30 50,000 Suppose that the cost of Cafeteria is allocated first. Support Departments Cafeteria 15 Departmental costs before alloc...
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