managerial accounting chapter 17, 8th edition hilton
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Managerial Accounting by HiltonTRANSCRIPT
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Allocation of Support Activity Costs and
Joint Costs
Allocation of Support Activity Costs and
Joint Costs
Chapter 17
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
1
Learning Objective
1
17-3
First, we identify the factor that drives costs in the
service department.
This cost driver is called the allocation base.
How are servicedepartment costs
charged to productiondepartments?
Service Department Cost Service Department Cost AllocationAllocation
17-4
ProductionDepartments
ServiceDepartments
Carry out the central purposes
of an organization.
Provide supportthat facilitates the
activities of production departments.
Service Department Cost Service Department Cost AllocationAllocation
support
17-5
Service Department(Cafeteria)
Service Department(Accounting)
Service Department(Personnel)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
The Product
Service Department Cost Service Department Cost AllocationAllocation
First Stage AllocationsService department costs are allocated
to production departments.
17-6
Service Department(Cafeteria)
Service Department(Accounting)
Service Department(Personnel)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
The Product
Second Stage Allocations
Production department overhead costs, plus allocated service department costs, are applied to products using
departmental predetermined overhead rates.
Service Department Cost Service Department Cost AllocationAllocation
17-7
Selecting Allocation BasesSelecting Allocation Bases
Personnel:Number ofemployees
Receiving:Units
handled
Security:Squarefootage
Power:Kilowatt
hours
Cafeteria:Number ofemployees
Custodial:Squarefootage
Accounting:Staffhours
TypicalAllocation
Bases
17-8
Interdepartmental ServicesInterdepartmental ServicesService
Department(Cafeteria)
Service Department(Custodial)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
POWER DEPARTMENT
17-9
Interdepartmental ServicesInterdepartmental Services
Problem
Allocating costs when service departmentsprovide services to each other
Solutions
Direct Method
Step Method
17-10
Direct MethodDirect Method
Service Department(Cafeteria)
Service Department(Custodial)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
Cost of servicesbetween servicedepartments areignored and all
costs areallocated directly
to productiondepartments.
17-11
Step MethodStep Method
Service Department(Cafeteria)
Service Department(Custodial)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
Service departmentcosts are allocated
to other servicedepartments and
to productiondepartments, usually
starting with theservice department
that serves thelargest number of
other service departments.
17-12
Step MethodStep Method
Service Department(Cafeteria)
Service Department(Custodial)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
Once a servicedepartment’s costs
are allocated, other service
departments’ costsare not allocated
back to it.
17-13
Step MethodStep Method
Service Department(Cafeteria)
Service Department(Custodial)
ProductionDepartment(Machining)
ProductionDepartment(Assembly)
Custodial willhave a new
total to allocateto production
departments: itsown costs plus
those costsallocated fromthe cafeteria.
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
2 (continued in Textbook)
Learning Objective
2 (continued in Textbook)
17-15
Fixed Versus Variable CostsFixed Versus Variable Costs
Are fixedand variable
costs allocateddifferently?
17-16
Result
When one departmentdecreases activity to
reduce allocations, alldepartments are penalized
because the chargeper use increases.
Remember, total fixedcosts do not change as
activity changes.
Fixed Versus Variable CostsFixed Versus Variable Costs
Problem
Allocating commonfixed costs using a
variable activityallocation base
17-17
Fixed Versus Variable CostsFixed Versus Variable Costs
Problem
Allocating commonfixed costs using a
variable activityallocation base
Solution
Use dual allocation method, allocatingfixed and variablecosts separately.
17-18
Dual Cost AllocationDual Cost Allocation
VariableCosts
Charge toproduction
departments at abudgeted rate times
actual short-run usage of the allocation base.
FixedCosts
Allocatebudgeted amounts
to operating departmentsin proportion to the
long-run averageusage of the
allocation base.
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
3 – 6 can be found in the
Textbook
Learning Objective
3 – 6 can be found in the
Textbook
17-20
End of Chapter 17End of Chapter 17
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