What are the four common methods used to allocate service department costs?
In prior chapters, we discussed factory overhead allocation. However, we took the existence of factory overhead cost in a producing department as a given. This chapter asks us to step back and trace these factory overhead costs from incurrence through assignment to units produced. Show
Use the opening scenario to introduce the concept of the two categories of departments: support departments and producing departments. Each type of department should be defined, and it should be indicated that this chapter is primarily concerned with describing ways of allocating support-department costs to producing departments. A. Types of Departments If departments are the cost objects, departments are classified as either producing departments or support departments. Definition: responsible for creating the products provide support services for producing departments Examples: assembly department, finishing department maintenance, personnel, security
2. ASSIGNING DEPARTMENT COSTS TO PRODUCING DEPARTMENTS
Usage: Budgeted usage Actual usage Service department allocation: Budgeted rate × Budgeted usage Budgeted rate × Actual usage
3. CHOOSING A SUPPORT DEPARTMENT COST ALLOCATION METHOD
4. DEPARTMENTAL OVERHEAD RATES AND PRODUCT COSTING
The flow of costs could be diagramed as follows: Support Department CostsProducing DepartmentOverhead CostsUnits of Product$400,000$200,000$200,000$600,000
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