Single Rate and Dual Rate Methods Single rate method Makes no distinction

Single rate and dual rate methods single rate method

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fixed costs be allocated in the same way? Single-Rate and Dual-Rate Methods Single-rate method Makes no distinction between fixed and variable costs o Allocates costs in each cost pool (support department in this section)  using the same rate per unit of a single allocation base Dual-rate method Partitions 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 Method Allocates 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 method Also called the sequential allocation method Allocates 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 method Allocates 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 equations o 1 Express support departmental costs and reciprocal relationships in  the form of linear equations o 2 Solve the set of Linear equations to obtain the complete reciprocated  costs of each support department o 3 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 9 26/10/2009 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

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