Each pool uses a different cost allocation Allocation Method

Each pool uses a different cost allocation allocation

This preview shows page 9 - 26 out of 50 pages.

Each pool uses a different cost-allocation base
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15-10 Allocation Method Tradeoffs Single-rate method is simple to implement but treats fixed costs in a manner similar to variable costs Dual-rate method treats fixed and variable costs more realistically but is more complex to implement
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15-11 Allocation Bases Under either method, allocation of support costs can be based on one of the three following scenarios: Budgeted overhead rate and budgeted hours Budgeted overhead rate and actual hours Actual overhead rate and actual hours Choosing between actual and budgeted rates: budgeted is known at the beginning of the period , while actual will not be known with certainty until the end of the period
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15-12 Budgeted usage, Actual usage, and capacity-level allocation bases Allocation based on budgeted usage Allocation based on actual usage Allocation based on practical usage Allocation based on budgeted usage= Allocation based on actual usage equal to > < FC$3000000
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15-13 Interdepartmental Services Problem Allocating costs when service departments provide services to each other Problem Allocating costs when service departments provide services to each other Solutions Direct Method Step-Down Reciprocal Methods of Allocating Support Costs to Production Departments
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15-14 Direct Method Allocates support costs only to Operating Departments No interaction between Support Departments prior to allocation
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15-15 Direct Method
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15-16 Direct Method
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15-17 Step-Down Method Allocates support costs to other support departments and to operating departments that partially recognizes the mutual services provided among all support departments One-way interaction between Support Departments prior to allocation
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15-18 Step-Down Method
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15-19 Step-Down Method
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15-20 Reciprocal Method Allocates support department costs to operating departments by fully recognizing the mutual services provided among all support departments Full two-way interaction between Support Departments prior to allocation
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15-21
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15-22 Choosing Between Methods Reciprocal allocation method is the most precise Considers the mutual services provided among all support departments Highlights the complete reciprocated costs of support departments, helpful for outsource Direct and Step-Down allocation method are simple to compute and understand Direct allocation method is widely used
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15-23 Allocating Common Costs Common Cost the cost of operating a facility, activity, or like cost object that is shared by two or more users at a lower cost than the individual cost of the activity to each user
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15-24 Methods of Allocating Common Costs Stand-Alone Cost-Allocation Method uses information pertaining to each user of a cost object as a separate entity to determine the cost-allocation weights Individual costs are added together and allocation percentages are calculated from the whole, and applied to the common cost
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15-25 Methods of Allocating Common Costs Incremental Cost-Allocation Method ranks the individual users of a cost object in the order of users most responsible for a common cost and then uses this ranking to allocate the cost among the users
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  • Two '14
  • KALAIVANEE
  • production departments

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