Transcript Libby, Libby and Short - Yogyakarta State University

7 -1
CHAPTER
Support
Department
Cost
Allocation
7 -2
Objectives
1. Describe theAfter
difference
between
studying
this support
departmentschapter,
and producing
departments.
you should
2. Calculate single be
andable
multiple
to: changing rates
for a support department.
3. Allocate support-department costs to
producing departments using the direct,
sequential, and reciprocal methods.
4. Calculate departmental overhead rates.
7 -3
Types of Departments
Producing
departments are
directly responsible for
creating the products or
services sold to
customers.
7 -4
Types of Departments
Supporting
departments provide
essential support
services for producing
departments.
Maintenance, grounds,
engineering, personnel, storage
7 -5
Steps in Allocating Support Department
Costs to Producing Departments
1.
Departmentalize the firm.
2. Classify each department as a support department or a
producing department or adm. / selling dept.
3. Trace all overhead costs in the firm to a support
department or producing department or adm. / selling
dept.
4. Allocate supports department costs to the producing
departments or adm. / selling dept.
Continued
7 -6
Steps in Allocating Support Department
Costs to Producing Departments
5. Calculate predetermined overhead rates
for the producing departments or adm. /
selling dept.
6. Allocate overhead costs to the units of
individual products through the
predetermined overhead rates.
Examples of Cost Drivers for
Support Departments
Support Department
Possible Driver
Accounting
Number of transactions
Cafeteria
Number of employees
Engineering
Number of change orders
Maintenance
Machine hours; maintenance
hours
Payroll
Number of employees
Personnel
Number of employees, firings,
layoffs, new hires
7 -7
7 -8
Objectives of Allocation
1. To obtain a mutually agreeable price.
2. To compute product-line profitability.
3. To predict the economic effects of planning
and control.
4. To value inventory.
5. To motivate managers.
7 -9
Note Objective 5: Allocations can
be used to motivate managers.
7 -10
AND
Fixed costs……………… $26,190
Variable costs….. $0.023 per page
Contoh 1
7 -11
A Single Charge Rate
Estimated usage (in pages) by the three producing
departments is as follows:
Audit Department
Tax Department
MAS Department
Total
Variable cost: 270,000 x $0.023
Fixed cost
Total cost for 270,000 pages
Average cost ($32,400 ÷ 270,000)
94,500
67,500
108,000
270,000
$ 6,210
26,190
$32,400
$0.12 per page
Contoh 2
7 -12
A Single Charge Rate
Total Photocopying Department Charge
Number
Charge
Total
x
=
of Pages
per Page
Charges
Audit Department
92,000
$0.12
$11,040
Tax Department
65,000
0.12
7,800
115,000
0.12
13,800
MAS Department
Total
272,000
$32,640
Perhitungan berbasis pada satu tarif, baik BOP T / V
7 -13
Multiple Charging Rates
Proportion
of Peak
Usage
Total
Fixed
Costs
Amount
Allocated to
Each
Department
7,875
0.20
$26,190
$ 5,238
22,500
0.57
26,190
14,928
9,000
0.23
26,190
6,024
Peak
Number
of Pages
Audit
Tax
MAS
Total
39,375
$26,190
9.000/39.375
26.190 X 0,23
Perhitungan berbasis pada dua tarif, ini untuk BOP T / V
7 -14
Multiple Charging Rates
Number of
Pages x
Fixed Cost
Total
$0.023 + Allocation = Charges
Audit department
$2,116
$ 5,238
$ 7,354
Tax department
1,495
14,928
16,423
MAS department
2,645
6,024
8,669
$6,256
$26,190
$32,446
Total
0,023 x 115.000
Perhitungan berbasis pada dua tarif, total BOP T / V
Budgeted Versus Actual Usage
When we allocate supportdepartment costs to the producing
departments, should we allocate
actual or budgeted costs?
7 -15
Budgeted Versus Actual Usage
Budgeted costs.
7 -16
Budgeted Versus Actual Usage
A general principle of performance evaluation is
that managers should not be held responsible for
costs or activities over which they have no control.
7 -17
7 -18
Use of Budgeted Data for
Product Costing
Number of
x
Copies
Total
Rate
Allocated
= Charges
Audit Department
94,500
$0.12
$11,340
Tax Department
67,500
0.12
8,100
108,000
0.12
12,960
MAS Department
Total
270,000
$32,400
7 -19
Use of Actual Data for
Performance Evaluation Purposes
Number of
x
Copies
Total
Rate
Allocated
= Charges
Audit department
92,000
$0.12
$11,040
Tax department
65,000
0.12
7,800
115,000
0.12
13,800
MAS department
Total
272,000
$32,640
Choosing A Service Department
Cost Allocation Method
The three methods for allocating service
department costs to producing departments
are:
 The Direct Method
 The Sequential Method
 The Reciprocal Method
7 -20
7 -21
Data for Illustrating Allocation Methods
Support Departments Producing Departments
Power
Direct costs*
Maintenance Grinding
Assembly
$250,000
$160,000
$100,000
$ 60,000
-----
200,000
600,000
200,000
1,000
-----
4,500
4,500
Normal activity:
Kilowatt-hours
Maintenance hours
*For a producing department, direct costs refer only to
overhead costs that are directly traceable to the department.
7 -22
Direct Method of Allocation
Power
Maintenance
Grinding
Assembly
7 -23
Direct Method of Allocation
Power
Maintenance
Grinding
Assembly
7 -24
STEP 1—CALCULATE ALLOCATION RATIOS
Grinding
600,000
Power =
(600,000 + 200,000)
0.75
200,000
(600,000 + 200,000)
Maintenance =
4,500
(4,500 + 4,500)
4,500
(4,500 + 4,500)
Direct Method
Assembly
0.25
0.50
0.50
7 -25
STEP 2—ALLOCATE SUPPORTS DEPARTMENT
COSTS USING THE ALLOCATION RATIOS
Support Departments Producing Departments
Power Maintenance Grading Assembly
Direct costs
$250,000
$160,000
Power a
-250,000
---
187,500
62,500
---
-160,000
80,000
80,000
Maintenance b
$
0
$
0
$100,000 $ 60,000
$367,500 $202,500
a
0.75 x $250,000 = $187,500; 0.25 x $250,000 = $62,500
b
0.50 x $160,000 = $80,000
Direct Method
7 -26
Sequential Method of Allocation
STEP 1: Rank service departments
1
2
Power
Maintenance
7 -27
Sequential Method of Allocation
STEP 2
Power
Maintenance
Grinding
Assembly
7 -28
Sequential Method of Allocation
STEP 2
Maintenance
Grinding
Assembly
7 -29
STEP 1—CALCULATE ALLOCATION RATIOS
Maint. Grinding Assembly
200,000
Power =
(200,000 + 600,000 +
200,000)
600,000
(200,000 + 600,000 +
200,000)
0.20
Sequential Method
0.60
7 -30
STEP 1—CALCULATE ALLOCATION RATIOS
Maint. Grinding Assembly
Mainte- =
nance
4,500
(4,500 + 4,500)
4,500
(4,500 + 4,500)
Sequential Method
0.50
0.50
7 -31
STEP 2—ALLOCATE SUPPORT DEPARTMENT
COSTS USING THE ALLOCATION RATIOS
Support Departments Producing Departments
Power Maintenance Grading Assembly
Direct costs
$250,000
$160,000
Power a
-250,000
50,000
150,000
50,000
---
-210,000
105,000
105,000
Maintenance b
$
0
$
0
$100,000 $ 60,000
$355,000 $215,000
a
0.20 x $250,000 = $50,000; 0.60 x $250,000 = $150,000;
0.20 x $250,000 = $50,000
b
0.50 x $210,000 = $105,000
Sequential Method
7 -32
The reciprocal method of
allocation recognizes all
interactions among
support departments.
Reciprocal Method
7 -33
Support Departments Producing Departments
Power Maintenance Grading Assembly
Direct costs:
Normal activity:
Kilowatt-hours
Maintenance
hours
---
200,000
600,000
200,000
1,000
---
4,500
4,500
Proportion of Output Used by Departments
Power Maintenance Grading Assembly
Allocated ratios:
Power
Maintenance
---
0.20
0.60
0.20
0.10
---
0.45
0.45
7 -34
M = Direct costs + Share of Power’s costs
M = $160,000 + $50,000 + 0.02M
0.98M = $210,000
M = $214,286
7 -35
P = Direct cost + Share of Maintenance’s cost
P = $250,000 + 0.1($214,286)
P = $250,000 + $21,429
P = $271,429
7 -36
ALLOCATE SUPPORT DEPARTMENT COSTS
USING THE ALLOCATION RATIOS AND THE
SUPPORT-DEPARTMENT COSTS FROM
RECIPROCAL METHODS EQUATIONS
Support Departments Producing Departments
Power Maintenance Grading Assembly
Direct costs
$250,000
$160,000
Power
-271,429
54,286
162,857
54,286
271,429
-214,286
96,429
96,429
Maintenance
Total
$
0
$
0
from
from
Slide 7-35 Slide 7-34
$100,000 $ 60,000
$359,286 $210,715
7 -37
Comparison of Support Department Cost
Allocations Using the Direct, Sequential, and
Reciprocal Methods
Direct costs
Allocated from power
Allocated from maintenance
Total cost
Direct Method
Grinding Assembly
$100,000 $ 60,000
187,500
62,500
80,000
80,000
$367,500
$202,500
Click on button to compare with sequential method
Click on button to compare with reciprocal method
Return to
show
7 -38
Comparison of Support Department Cost
Allocations Using the Direct, Sequential, and
Reciprocal Methods
Direct costs
Sequential Method
Grinding Assembly
$100,000 $ 60,000
Allocated from power
150,000
50,000
Allocated from maintenance
105,000
105,000
$355,000
$215,000
Total cost
Click on button to compare with direct method
Click on button to compare with reciprocal method
Return to
show
7 -39
Comparison of Support Department Cost
Allocations Using the Direct, Sequential, and
Reciprocal Methods
Direct costs
Allocated from power
Allocated from maintenance
Total cost
Reciprocal Method
Grinding Assembly
$100,000 $ 60,000
162,857
54,286
96,429
96,429
$359,286
$210,715
Click on button to compare with direct method
Click on button to compare with sequential method
Return
to show
Departmental Overhead Rates
The overhead rate for the grinding department is computed
as follows (assuming the normal level of activity is 71,000
MH):
OH rate = $355,000  71,000 = $5 per MH
The overhead rate for the assembly department is computed
as follows (assuming the normal level of activity is 107,500
DLH):
OH rate = $215,000  107,500 = $2 per DLH
7 -40
7 -41
Product Unit Cost
A product requires two machine hours of
grinding per unit and one hour of assembly.
Overhead cost assigned:
2 x $5
1 x $2
Total assigned
$10
2
$12
7 -42
Chapter Seven
The End