Bài giảng môn Kế toán, kiểm toán - Chapter 17: Allocation of support activity costs and joint costs
As stated previously, the direct method ignores the provision of services by one service department to another service department.
This shortcoming is overcome partially by the step-down method of service department cost allocation.
Under this method, the managerial accountant first chooses a sequence in which to allocate the service costs.
A common way to select the first service department in the sequence is to choose the one that serves the largest number of other service departments.
The departments are ordered in this manner, with the last service department being the one that serves the smallest number of other service departments.
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Allocation of Support Activity Costs and Joint CostsChapter 17Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Service Department(Cafeteria)Service Department(Accounting)Service Department(Personnel)Production Department(Machining)Production Department(Assembly)The ProductSecond Stage AllocationsProduction department overhead costs, plus allocated service department costs, are applied to products using departmental predetermined overhead rates.Service Department Cost AllocationFirst Stage AllocationsService department costs are allocated to production departments.17-2Selecting Allocation BasesPersonnel:Number of employeesReceiving:Units handledSecurity:Square footagePower:Kilowatt hoursCafeteria:Number of employeesCustodial:Square footageAccounting:Staff hoursTypical Allocation Bases17-3Selecting Allocation BasesCriteria for selectionPersonnel:Number of employeesReceiving:Units handledSecurity:Square footagePower:Kilowatt hoursCafeteria:Number of employeesCustodial:Square footageAccounting:Staff hoursSimplicityAvailability of space or equipmentBenefits received by the production department 17-4Interdepartmental ServicesService Department(Cafeteria)Service Department(Custodial)Production Department(Machining)Production Department(Assembly)POWER DEPARTMENT17-5Interdepartmental ServicesProblemAllocating costs when service departments provide services to each otherSolutionsDirect MethodStep-Down Method17-6Direct MethodService Department(Cafeteria)Service Department(Custodial)Production Department(Machining)Production Department(Assembly)Cost of services between servicedepartments are ignored and allcosts are allocated directly to production departments.For an example please see the textbook.17-7Step-Down MethodService Department(Cafeteria)Service Department(Custodial)Production Department(Machining)Production Department(Assembly)Service department costs are allocated to other servicedepartments and to production departments, usually starting with the service department that serves the largest number of other service departments. 17-8Step-Down MethodService Department(Cafeteria)Service Department(Custodial)Production Department(Machining)Production Department(Assembly)Once a service department’s costs are allocated, other service departments’ costs are not allocated back to it. 17-9Step-Down MethodService Department(Cafeteria)Service Department(Custodial)Production Department(Machining)Production Department(Assembly)Custodial will have a new total to allocate to production departments: its own costs plus those costs allocated from the cafeteria. For an example please see the textbook.17-10Charge to production departments at a budgeted rate times actual short-run usage of the allocation base.Allocate budgeted amounts to operating departments in proportion to the long-run average usage of the allocation base. Budgeted costs should be allocated to avoid passing on inefficiencies from the service departments.Dual Cost Allocation17-11SimCo 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.Dual Cost Allocation Example17-12Variable costs are allocated based on hours used.Fixed costs are allocated based long-run average usage.Dual Cost Allocation Example17-13The New Manufacturing EnvironmentMore accurate cost tracing systems reduce the need for allocation of indirect costs.17-14The Rise of Activity-Based CostingService Department(Cafeteria)Service Department(Accounting)Service Department(Personnel)The ProductFirst stage allocations are to activities, not departments.Activity OneActivity Two17-15Separate Processing CostsFinalSaleSeparateProcessingFinalSaleSeparateProcessingSeparate Processing CostsJointInputJointProductionProcessSplit-OffPointJoint ProductCostsOilGasolineJoint Product Cost Allocation17-16Allocating Joint CostsJoint Product CostsPhysical-Units MethodRelative-Sales-Value MethodNet-Realizable-Value Method17-17Allocating Joint CostsAllocation 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 costs.Relative-Sales- Value MethodPhysical-Units MethodNet-Realizable- Value Method17-18240,000 gallons360,000 gallonsJointProductionProcessSplit-OffPointOilGasolineJoint materialcost = $275,000Joint conversion cost = $225,000Physical-Units Method17-19Physical-Units Method$225,000 joint conversion cost plus $275,000 joint material cost17-20$200,000sales value atsplit-off point$600,000sales value atsplit-off pointJointProductionProcessSplit-OffPointOilGasolineJoint materialcost = $275,000Joint conversion cost = $225,000Relative-Sales-Value Method17-21$225,000 joint conversion cost plus $275,000 joint material costRelative-Sales-Value Method17-22Net-Realizable-Value Method If products require further processing beyond the split-off point before they are marketable, it may be necessary to estimate the net realizable value (NRV) at the split-off point.EstimatedNRV FinalSalesValueAdded Processing Costs–=17-23Net-Realizable-Value MethodJointProductionProcessOilGasolineSeparateProcessingSeparateProcessingJoint materialcost = $275,000Joint conversion cost = $225,000SalesValue $500,000SalesValue $1,200,000Split-OffPoint, Sales Value UnknownSeparate Processing Costs $500,000Separate Processing Costs $200,00017-24Net-Realizable-Value Method17-25Reciprocal-Services Method Fully accounts for reciprocal services More accurate Can be combined with dual allocation17-26
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