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

Support departments cafeteria 15 departmental costs

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Unformatted text preview: ation Cafeteria allocation (# employees) Custodial allocation (Sq feet occupied) Total after allocation Custodial Operating Departments Machining Assembly 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 Operating Departments Cafeteria Departmental costs before allocation (BA) Cafeteria allocation (# employees) Custodial allocation (Sq feet occupied) Total after allocation (AA) 16 Custodial Machining Assembly $ 360,000 $ (360,000) $0 0 $ 90,000 $ 60,000^ 16.67%* $ (150,000) 0 $ 400,000 $ 120,000 33.33% $ 50,000 33.33% $ 570,000 $ 700,000 $ 180,000 50% $ 100,000 66.67% $ 980,000 * 10/(10+ 30) ^ 360,000*[10/(10+ 30)] or 16.67% 20+ 20+ Reciprocal Method Support department (cafeteria) Support department (custodial) 17 Operating department (machining) Operating department (assembly) Reciprocal Method The step method only allocates costs in one direction. It is a more reasonable method than the direct method but still does not fully recognize reciprocal services among support departments. 18 Reciprocal Method Explicitly recognizes and allocates the costs of all services provided by any support department, including those provided to other support departments If allocation bases are reasonable, this Reciprocal Method Let’s say there are four departments: S1, S2, P1 and P2, the idea of the reciprocal method is that the cost of S1 will be allocated to S2, P1 and P2 after it gets its share of the cost of S2. The cost of S2 is allocated to S1, P1 and P2 after getting its allocation from S1. Notice that the cost allocation process between S1 and S2 is simultaneous! Recall Total Departmental Cost = Direct Cost of the Allocated Costs from After Allocation Support Departments 19 + Dept Before Allocation This means that we have equations like the following to help us solve the problem: Example (Reciprocal Method) Support Departments Cafeteria (S1) Departmental costs before allocation Number of employees Square feet occupied $ Custodial (S2) 360,000 $ 15 5,000 Operating Departments Machining (P1) Assembly (P2) 90,000 $ 10 2,000 400,000 20 25,000 $ 700,000 30 50,000 % Used by Internal Customers Support Departments S2 P1 P2 S1 (# employees) - 16.67%* 33.33% 50% S2 (Square feet occupied)...
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