Chapter 17 - Allocation of support activity costs and joint costs. After completing this chapter, you should be able to: Allocate service department costs using the direct method and the step-down method, use the dual approach to service department cost allocation, explain the difference between two-stage cost allocation with departmental overhead rates and activity-based costing (ABC),...
Trang 1Allocation of Support
Activity Costs and
Joint Costs
Chapter 17
Trang 2Production Department (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 Allocation
First Stage Allocations
Service department costs are allocated
to production departments.
Trang 3Selecting Allocation Bases
Cafeteria:
Number of employees
Custodial:
Square footage
Accounting:
Staff hours
Typical Allocation Bases
Trang 4Selecting Allocation Bases
Criteria for selection
Cafeteria:
Number of employees
Custodial:
Square footage
Accounting:
Staff hours
Simplicity
Availability
of space or equipment
Benefits received
by the production department
Trang 5Interdepartmental Services
Service Department (Cafeteria)
Service Department (Custodial)
Production Department (Machining)
Production Department (Assembly)
POWER DEPARTMENT
Trang 6Interdepartmental Services
Problem
Allocating costs when service departments
provide services to each other
Solutions
Direct Method Step-Down Method
Trang 7Direct Method
Service Department (Cafeteria)
Service Department (Custodial)
Production Department (Machining)
Production Department (Assembly )
Trang 8Step-Down Method
Service Department (Cafeteria)
Service Department (Custodial)
Production Department (Machining)
Production Department
Trang 9Step-Down Method
Service Department (Cafeteria)
Service Department (Custodial)
Production Department (Machining)
Production Department (Assembly )
Trang 10Step-Down Method
Service Department (Cafeteria)
Service Department (Custodial)
Production Department (Machining)
Production Department (Assembly )
Trang 11Charge to production departments at a
budgeted rate times
actual short-run usage of
the allocation base.
Budgeted costs should be allocated to avoid passing on inefficiencies
from the service departments.
Dual Cost Allocation
Trang 12SimCo has a maintenance department and two production departments: cutting and assembly Variable maintenance
costs are budgeted at $0.60 per machine hour Fixed
maintenance costs are budgeted at $200,000 per year.
Data relating to the current year are:
Allocate maintenance costs to the two operating departments.
Long-run Maintenance Actual
Trang 13Cutting Assembly Department Department Variable cost allocation:
Total allocated cost $ 168,000 $ 104,000
Variable costs are allocated based on hours used.
Fixed costs are allocated based long-run average usage.
Dual Cost Allocation
Example
Trang 14The New Manufacturing Environment
More accurate cost tracing systems
reduce the need for allocation
of indirect costs.
More accurate cost tracing systems
reduce the need for allocation
of indirect costs.
Trang 15The Rise of Activity-Based Costing
First stage allocations are to activities, not departments.
Activity One Activity Two
Trang 16Separate Processing Costs
Final Sale
Separate Processing
Final Sale
Separate Processing
Separate Processing Costs
Joint
Input
Joint Production Process
Split-Off Point
Joint Product Costs Oil
GasolineJoint Product Cost Allocation
Trang 17Allocating Joint Costs
Relative- Value Method
Trang 18Net-Realizable-Allocating Joint Costs
Allocation based on the relative values
of the products at the split-off point
Allocation based on a physical measure of the joint products at the split-off point
Allocation based on final sales values less separable processing
Trang 19240,000 gallons
360,000 gallons
Joint Production Process
Split-Off Point
Physical-Units Method
Trang 20Product Oil Gasoline Total
Output quantities in gallons 240,000 360,000 600,000 Proportionate share:
$225,000 joint conversion cost plus
$275,000 joint material cost
Trang 21$200,000 sales value at split-off point
$600,000 sales value at split-off point
Joint Production Process
Split-Off Point
Relative-Sales-Value Method
Trang 22Product Oil Gasoline Total
Sales value at split-off point $ 200,000 $ 600,000 $ 800,000 Proportionate share:
$225,000 joint conversion cost plus
$275,000 joint material cost Relative-Sales-Value Method
Trang 23Net-Realizable-Value Method
If products require further processing beyond the splitoff point before they are marketable,
it may be necessary to estimate the net realizable value (NRV) at the splitoff point.
Estimated
NRV
Final Sales Value
Added Processing Costs
–
=
Trang 24Net-Realizable-Value Method
Joint Production Process
Oil
Gasoline Separate
Processing
Separate Processing
Joint material
cost = $275,000
Joint conversion cost = $225,000 ValueSales
$500,000
Sales Value
$1,200,000
Split-Off Point, Sales
Processing Costs
$500,000
Separate Processing Costs
$200,000
Trang 25Product Oil Gasoline Total
Less additional processing costs 200,000 500,000 700,000