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fixed costs be allocated in the same way?←Single-Rate and Dual-Rate Methods•Single-rate methodMakes no distinction between fixed and variable costsoAllocates costs in each cost pool (support department in this section) using the same rate per unit of a single allocation base•Dual-rate methodPartitions the cost of each support department into two pools- a variable-cost pool and a fixed-cost pool- and allocates each using a different cost-allocation base←Allocating Costs of Multiple Support Department←Direct MethodAllocates each support department’s costs to operating departments only•Does not allocate support-department costs to other support departments
•An equivalent approach to implementing the direct method involves calculating a budgeted rate for each support department’s costs•Widely practiced because of its ease of use and simplicity•No need to predict the usage of support-department services by other support departments•Disadvantage of the direct method is that it ignores information about reciprocal services provided among support departments and can there fore lead to inaccurate estimates of the cost of operating departments←Step-down methodAlso called the sequential allocation methodAllocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments•Method requires that support departments to be ranked (sequenced) in the order that the step-down allocation is to proceed•Once a support department’s costs have been allocated, no subsequent support-department costs are allocated back to it←Reciprocal methodAllocates support department costs to operating departments by fully recognizing the mutual services provided among all support departments.•An alternative way to implement the reciprocal method is to formulate and solve linear equationso1 Express support departmental costs and reciprocal relationships in the form of linear equationso2 Solve the set of Linear equations to obtain the complete reciprocated costs of each support departmento3 Allocate the complete reciprocated costs of each support department to all other departments (both support departments and operating and operating departments) on the basis of the usage percentages (based on total units of service provided to all departments)Additional Notes
Chapter 926/10/2009 14:13:00←Inventory Costing and Capacity Analysis←Part one: Inventory costing for manufacturing companies←Variable Costing and Absorption Costing←Data for Stassen Company for 2009•Stassen uses standard costing:o