813 Accounting department costs could be allocated using number of employees

813 accounting department costs could be allocated

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8.13 Accounting department costs could be allocated using number of employees, departmental direct costs, or time spent on activities for individual departments. An advantage of number of employees is that it would be simple to use in calculations. A disadvantage is that it probably does not reflect the use of the department by other departments. An advantage of departmental direct costs is that accounting activities probably increase as direct costs increase, and direct costs are fairly easy to measure. A disadvantage is that there are some accounting activities that do not vary with direct costs. And advantage of time spent on accounting activities for every department is that it is probably most accurately reflects the use of accounting by other departments, but it would be hard to track, and there is likely measurement error when time is not recorded as used, but estimated or recorded after the fact. 8.14 a. GAAP requires manufacturing overhead to be allocated to units of product or service, generally using a traditional cost accounting method such as job costing or process costing. b. Under GAAP, costs for departments that directly support the manufacturing function, such as material handling are allocated. However, costs of departments that provide non-manufacturing support, such as accounting and human resources are not allocated to units or services, they are expensed as period costs. 8.15 If allocations are used as part of a planning activity, such as estimating budgets, then estimated costs should be used to incorporate any expected cost changes. If managers want to understand the actual use of support department resources, then actual values are used. If allocations of cost to departments are based on estimated volumes, then managers have little incentive to use resources efficiently because the estimate amount is set. However, if actual values are used, managers are
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penalized by higher allocations when one or more departments use less of the support department resources than expected. 8.16 A cafeteria in a university can be both a support department and a revenue- generating department. However, the type of department depends on whether the university subsidizes employee meals. If employees pay the full cost of meals, then the cafeteria it is a revenue-generating department. If an employee discount is given, but employees pay only part of the cost, and studetns also use the cafeteria, it is both a revenue-generating and a support department. MULTIPLE CHOICE QUESTIONS 8.17 A business uses the step-down method to allocate service department costs to the manufacturingdepartments. Assume that there are two service departments and two manufacturing departments,as shown here: Service Departments Manufacturing Departments Plant Administration Custodial Services Cutting Polishing Costs $360,000 $90,000 $261,000 $689,000 Labour hours 25,000 6,000 18,000 30,000 Space occupied (m2) 10,000 1,000 5,000 45,000 Plant administration costs are allocated based on labour hours, and custodial services costs areallocated based on space occupied. The total costs of the cutting
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