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

# Direct method costs of support departments are only

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Unformatted text preview: upport departments are only allocated to production departments 2. Step-Down Method (Sequential Allocation Method) Allocate costs of support departments in steps; allocate costs of more general support departments first, then to less general ones 7 3. Reciprocal Method Explicitly recognizes the reciprocal services Cost Allocation Process Total Departmental Cost = Direct Cost of the + After Allocation Dept Before Allocation Allocated Costs from Support Departments Cost Allocation Process: 1) Allocate support department costs amongst support departments and get the After Allocation Departmental Cost of each support department 2) Allocate the After Allocation Departmental Cost of each support department to each operating department Example: Ashley Co. has four departments: S1, S2, P1 and P2 Step 1: A llocate costs between S1 and S2, the support departments S1BA & S2BA become S1AA & S2AA BA = Before Allocation AA = After Allocation 8 Step 2: A llocate S1AA and S2AA to P1 and P2 A dd S1AA & S2AA to P1BA & P2BA to get P1AA & P2AA Direct Method Support department (cafeteria) Operating department (machining) Cost of services between support departments are ignored and Support Operating all department department costs are (custodial) (assembly) allocated directly Since there is NO allocation between support departments, to operating CafeBA = CafeAA & CustBA = CustAA. This means that the departments. costs of the support departments are allocated to 9 Machining and Assembly directly. Direct Method continued Only allocate the costs of support departments to operating departments! The amount to allocate to the support departments depends on the relative usage of the operating departments. % to P1 Cost of S1 Allocated Used by Internal Customers Service Departments S1 S2 P1 P2 20% - 30% 50% = Allocation Base of P1/(Sum of Allocation Base of P1,S1 P2…) 10% 20% 70% S2 10 Suppose that there are two support departments S1 & S2 with costs of \$100 Example (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 Cafeteria Departmental costs before allocation Cafeteria allocation (# employees) Custodial allocation (Sq feet occupied) Total after allocation 11 Custodial Operating Departments Machining Assembly Exampl...
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## This document was uploaded on 04/07/2014.

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