Appendix 4B
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright2012byTheMcGrawHillCompanies,Inc.Allrightsreserved.
4B-2
Operating Departments
An operating department carries out
the central purpose of the organization.
The
The Surgery Geography The
Department Department Production
at Mount at the Departments
Sinai University of at
Hospital. Washington. Mitsubishi.
4B-3
Service Departments
Service
Service departments
departments dodo not
not directly
directly
engage
engage in
in operating
operating activities.
activities.
Interdepartmental Services
Service Operating
Department Department
Costs of the service
department become
overhead costs to
the operating
department.
4B-5
Allocation Approaches
4B-6
Reciprocal Services
Service Service
Department 1 Department 2
When service
departments provide
services to each
other we call them
reciprocal services.
4B-7
Learning Objective 10
Allocate service
department costs to
operating departments
using the direct method.
4B-8
Direct Method
Service Operating
Interactions Department Department
between service (Cafeteria) (Machining)
departments are
ignored and all
costs are
allocated directly
to operating Service Operating
departments. Department Department
(Custodial) (Assembly)
4B-9
30
$360,000 = $216,000
20 + 30
25,000
$90,000 = $30,000
25,000 + 50,000
Learning Objective 11
Allocate service
department costs to
operating departments
using the step-down
method.
4B-16
Step-Down Method
Service Operating
Department Department
Once a service (Cafeteria) (Machining)
departments costs
are allocated,
other service
department costs
are not allocated
back to it.
Service Operating
Department Department
(Custodial) (Assembly)
4B-17
Step-Down Method
There are three key points to understand regarding
the step-down method:
In both the direct and step-down methods, any
amount of the allocation base attributable to the
service department whose cost is being allocated
is always ignored.
Any amount of the allocation base that is
attributable to a service department whose cost
has already been allocated is ignored.
Each service department assigns its own costs to
operating departments plus the costs that have
been allocated to it from other service departments.
4B-18
Allocate
Allocate Cafeteria
Cafeteria costs
costs first
first since
since
itit provides
provides more
more service
service than
than Custodial.
Custodial.
4B-20
10
$360,000 = $60,000
10 + 20 + 30
20
$360,000 = $120,000
10 + 20 + 30
30
$360,000 = $180,000
10 + 20 + 30
25,000
$150,000 = $50,000
25,000 + 50,000
50,000
$150,000 = $100,000
25,000 + 50,000
Reciprocal Method
Service Operating
Department Department
Interdepartmental (Cafeteria) (Machining)
services are given
full recognition
rather than partial
recognition as with
the step method. Service Operating
Department Department
(Custodial) (Assembly)
Quick Check
How much cost will be allocated from
Administration to Accounting?
a. $ 36,000
b. $144,000
c. $180,000
d. $ 27,000
4B-29
Quick Check
How much cost will be allocated from
Administration to Accounting?
a. $ 36,000
b. $144,000
c. $180,000 Service Departments Operating Departments
d. $ 27,000 ADMIN BACS Accounting Others
Departmental costs
before allocation $ 180,000 $ 90,000 $ 190,000 $ 900,000
ADMIN allocation (180,000) 36,000 144,000
20
$180,000 = $36,000
20 + 80
4B-30
Quick Check
How much total cost will be allocated from
ADMIN and BACS combined to the
Accounting Department?
a. $ 52,500
b. $135,000
c. $270,000
d. $ 49,500
4B-31
Quick Check
How much total cost will be allocated from
ADMIN and BACS combined to the
Accounting Department?
a. $35,250
b. $49,072
c. $18,000
d. $26,333
4B-34
Quick Check
How much total cost will be allocated from
ADMIN and BACS combined to the
Accounting Department?
a. $35,250
b. $49,072
c. $18,000
d. $26,333
4B-35
End of Chapter 4