Chapter 16 Flashcards
2 types of departments
- operating (production) department
- support (service) department
- production line
- factory segment
whicch department is this?
operating (production) department
- information systems
- production control
- materials management
- plant maintenance
which department is this?
support (service) department
allocating support department costs methods
- single rate method
- dual rate method
does not distinguish between fixed and variable costs. it allocates cost in each cost pool using the same rate per unit of a single allocation base
which allocating support department cost method is this?
single rate method
partitions the cost of each support department into two pools, a variable-cost pool and a fixed-cost pool, and allocates each pool using a different cost-allocation base
which allocating support department cost method is this?
dual rate method
calculates allocation rates on budgeted “use” of support department
based on demand
calculates allocation rates on total practical capacity of support department
based on supply of capacity
under either method (single or dual rates), allocation of support costs can be based on one of the three following scenarios
- budgeted overhead rate and budgeted hours
- budgeted overhead rate and actual hours
- actual overhead rate and actual hours
Pro #1: less costly to implemt
Pro #2: offers user departments some operational control over the charges they bear
Pros of single or dual rate method?
single rate method
Pro #1: guides department managers to make decisions that benefit both the organization as a whole and each department
Pro #2: allocating fixed costs basaed on budgeted usage helps user departments with both short run and long run planning because user departments know the costs allocated to them in advance
Pros of single or dual rate method
Dual rate method
Con #1: may lead operating department managers to make suboptimal decisions that are in their own best interest but may be inefficient from the standpoint of the organization as a whole
Cons of single or dual rate method
single rate method
Con #1: requires managers to distinguish variable costs from fixed costs, which is often a challenging task
Con #2: does not indicate to operating managers the cost of fixed support department resources used because fixed costs are allocated to operating departments based on budgeted rather than actual usage
Con #3: allocating fixed costs on the basis of budgeted long run usage may tempt some managers to underestimate their planned usage
Cons of single or dual rate method
dual rate method
when two or more support departments, also support each other
reciprocal support
allocates each support departments budgeted costs to operating deaprtments only. no allocations to other support departments
direct method
allocates support department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments
step down method
allocates support department costs to operating departments by fulling recognizing the mutual services provided among all support departments
reciprocal method
