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

Internal customers support departments s2 p1 p2 s1

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Unformatted text preview: 20 S1 6.25%^ - 31.25% 62.5% * 16.67% = 10/(10+20+30) ^ 6.25% = 5,000/(5,000+25,000+50,000) Example (Reciprocal Method) Total Departmental Costs After Allocation of S1 = Direct Costs of S1 B4 Allocation + Costs of Other Support Depts Allocated Using the table from the previous slide, we get the following for support depts: 21 S1AA = 360,000 + 0.0625*S2AA (1) S2AA = 90,000 + 0.1667*S1AA (2) P1AA = 400,000 + 0.3333*S1AA + 0.3125*S2AA (3) P2AA = 700,000 + 0.5*S1AA + 0.625*S2AA (4) Example (Reciprocal Method) Solving the first two equations gives you S1AA and S2AA S1AA = 360,000 + 0.0625*S2AA S2AA = 90,000 + 0.1667*S1AA (1) (2) Substitute (2) into (1) S1AA = 360,000 + 0.0625(90,000 + 22 0.1667*S1AA) S1AA = 360,000 + 5,625 + 0.0104*S1AA The cost of a (1-0.0104)*S1AA = 365,625 support-service department S1AA = $369,467.46 > 360,000 after allocation cannot be Plug the number above into (2) smaller than Example (Reciprocal Method) Service Departments Production Departments Cafeteria Departmental costs before allocation Cafeteria allocation (# employees) Custodial allocation (Sq feet occupied) Total after allocation 23 Custodial Machining $360,000.00 $90,000.00 $400,000.00 Assembly $700,000.00 - 16.67% 33.33% 50% 6.25% - 31.25% 62.50% Example (Reciprocal Method) Service Departments Production Departments Cafeteria Departmental costs before allocation Cafeteria allocation (# employees) Custodial allocation (Sq feet occupied) Total after allocation Custodial Machining Assembly $360,000.00 ($369,467.66) $9,467.66 6.25% 0 $90,000.00 $61,590.26 16.67% ($151,590.22) 0 $400,000.00 $123,143.57 33.33% $47,371.94 31.25% $570,515.51 $700,000.00 $184,733.83 50% $94,743.89 62.50% $979,477.72 Solving the equations with Excel without rounding the answers will give you the following: S1 = $369,474.46, S2 = $151,591.39, P1 = $ 570,518.15, P2 = $ 979,481.85 P1 : $ 570,518.15 24 P2: $ 979,481.85 Determine if the Cost Allocations Achieve Desired Results Cost Allocation Effects If support departments provide significant services to each other, the amounts of costs allocated to production departments probably differ significantly under each method. Significant differences can affect: Performance evaluations Contracts Decision making 25...
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This document was uploaded on 04/07/2014.

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