Cost Allocation
Chapter 13-14
Learning Objectives
Purposes and criteria for allocating indirect costs
Allocating costs form one department to another
Allocating costs of support departments
复习:成本核算流程－对外报告
1、按照成本计算目的，确定成本核算对象，如产品种类、产品批别等。
2、划分生产成本和期间费用的界限，生产成本指应计入产品成本的那部分费用。
3、在生产成本中，划分直接成本和间接成本，即为每个成本核算对象确定直接成本项目（如直接材料、直接人工等）。
复习:成本核算流程－对外报告
4、帐户设置
生产成本
基本生产成本：按成本核算对象开设生产成本明细帐（成本计算单）。
辅助生产成本：按辅助生产车间种类（如供水、供电、运输、机修等）开设明细帐。
制造费用
按不同车间、部门开设明细帐。
复习:成本核算流程－对外报告
一项成本费用发生
生产成本还是期间费用？
期间费用
损益表
——管理费用
——销售费用
——财务费用
基本生产成本还是辅助生产成本？
复习:成本核算流程－对外报告
辅助生产成本明细帐
直接成本还是间接成本？
基本生产成本明细帐
制造费用明细帐
（间接成本）
当期损益
复习:成本核算流程－对外报告
---基本生产成本明细帐（成本计算单）
完工产品成本
期末在产品成本
损益表
——销售成本
资产负债表
——存货
Learning Objective 1
Purposes and criteria for allocating costs
Purposes of Cost Allocation
Indirect costs are costs that are related to the particular cost object but cannot be traced to it in an economically feasible (cost effective) way.
Why do managers allocate indirect costs to these cost objects?
Purposes of Cost Allocation
There are four essential purposes of cost allocation:
To provide information for economic decisions
To motivate managers and other employees
To justify costs or compute reimbursement
To measure income and assets for reporting to external parties
Cost Allocation
The allocation of a particular cost need not satisfy all four purposes simultaneously.
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Criteria to Guide Cost-Allocation Decisions
Cause-and-effect: Using this criterion, managers identify the variable or variables that cause resources to be consumed.
Criteria to Guide Cost-Allocation Decisions
Benefits-received: Using this criterion, managers identify the beneficiaries of the outputs of the cost object.
Criteria to Guide Cost-Allocation Decisions
Fairness or equity: This criterion is often cited on government contracts when cost allocations are the basis for establishing a price satisfactory to the government and its suppliers.
Criteria to Guide Cost-Allocation Decisions
Ability to bear: This criterion advocates allocating costs in proportion to the cost object’s ability to bear them.
Role of Dominant Criteria
The criterion used to guide cost-allocation decisions affect both the number of indirect cost pools and the cost-allocation base for each indirect cost pool.
Managers must first choose the purpose for a particular cost allocation and then select the appropriate criterion to implement the allocation.
Role of Dominant Criteria
The cause-and-effect and the benefits-received criteria guide most decisions related to cost allocations.
Fairness and ability to bear are less frequently used criteria than cause-and-effect or benefits- received.
Learning Objective 2
Allocating costs from one department to another
Allocating costs from one department to another
Single-Rate and Dual-Rate Methods
Budgeted versus Actual Rates
Budgeted versus Actual Usage Alocation Bases
Single-Rate and Dual-Rate Methods
The single-rate cost allocation method pools together all costs in a cost pool and allocates these costs to cost objects using the same rate per unit of the single allocation base.
There is no distinction between costs in the cost pool in terms of cost behavior.
Single-Rate and Dual-Rate Methods
The dual-rate cost allocation method classifies costs in each cost pool into two cost pools – a variable cost cost-pool and a fixed-cost cost-pool.
Each of these pools uses a different cost-allocation base.
Budgeted versus Actual Rates
The decision of whether to use budgeted cost rates or actual cost rates affects the level of uncertainty user divisions face.
Budgeted rates let the user department know in advance the cost rates they will be charged.
Users are better equipped to determine the amount of the service to request.
Budgeted versus Actual Rates
Budgeted rates also help motivate the manager of the supplier department to improve efficiency.
During the budget period, the supplier department, not the user departments, bears the risk of any unfavorable cost variances.
Why?
Budgeted versus Actual Rates
because the user departments do not pay for any costs that exceed the budgeted rates
Budgeted versus Actual Rates
When cost allocations are made using budgeted rates, managers of divisions to which costs are allocated face no uncertainty about the rates to be used in that budget period.
When actual rates are used for cost allocation, managers do not know the rates to be used until the end of the budget period.
Budgeted versus Actual Usage Allocation Bases
When budgeted usage is the allocation base, user divisions will know in advance their allocated costs.
This information helps the user divisions with both short-run and long-run planning.
The main justification given for the use of budgeted usage to allocate fixed costs relates to long-run planning.
Budgeted versus Actual Usage Allocation Bases
Organizations commit to infrastructure costs on the basis of a long-run planning horizon.
The use of budgeted usage to allocate these fixed costs is consistent with the long-run horizon.
Learning Objective 3
Allocating costs of support departments
Allocating Support Departments Costs
Organizations distinguish between operating departments and support departments.
An operating department (a production department in manufacturing companies) adds value to a product or service.
A support department (service department) provides the services that assist other operating and support departments in the organization.
Allocating Support Departments Costs
Three methods are widely used to allocate the costs of support departments to operating departments:
Direct allocation method
Step-down method
Reciprocal method
Allocating Support Departments Costs
Direct method: Allocates support department costs to operating departments only.
Step-down (sequential allocation) method: Allocates support department costs to other support departments and to operating departments.
Allocating Support Departments Costs
Reciprocal allocation method: Allocates costs by including the mutual services provided among all support departments.
The direct method and the step-down method are less accurate than the reciprocal method when support departments provide services to one another reciprocally.
Allocating Support Departments Costs
The following information pertains to the Toledo Division of Sandy Corporation:
Recall that the Toledo Division has two operating departments – Assembly and Finishing, and two support departments – Maintenance and Human Resources.
Allocating Support Departments Costs
Total square feet = 255,000
Total number of employees = 95
Maintenance is allocated using square feet.
Human Resources is allocated using number of employees.
Allocating Support Departments Costs
Human
Maintenance Resources
Budgeted costs
before allocations: $300,000 $2,160,000
Square feet: 5,000 30,000
Number of employees: 8 15
Allocating Support Departments Costs
Assembly Finishing
Budgeted costs
before allocations: $1,700,000 $900,000
Square feet: 110,000 110,000
Number of employees: 48 24
Direct Method...
allocates support department costs to operating departments only.
The allocation ratio for allocating Maintenance to Assembly is 110,000/220,000 x $300,000 = $150,000.
The allocation ratio for allocating Maintenance to Finishing is 110,000/220,000 x $300,000 = $150,000.
Direct Method
The allocation ratio for allocating Human Resources to Assembly is 48/72 × $2,160,000 = $1,440,000.
The allocation ratio for allocating Human Resources to Finishing is 24/72 × $2,160,000 = $720,000.
Direct Method
Assembly Finishing Original costs: $1,700,000 $ 900,000 Maintenance Allocated: 150,000 150,000 Human Resources Allocated: 1,440,000 720,000
Total $3,290,000 $1,770,000
Step-Down Method...
allocates support department costs to other support departments and to operating departments.
Which support department should be allocated first?
The support department providing the greatest percentage of support to other support departments is allocated first.
Step-Down Method
Maintenance provides 12% of its services to Human Resources.
Human Resources provides 10% of its services to Maintenance.
The ratio to allocate Maintenance to Human Resources is 30,000/250,000 (or 12%) × $300,000 = $36,000.
Step-Down Method
The ratio to allocate Maintenance to Assembly is 110,000/250,000 (or 44%) × $300,000 = $132,000.
The ratio to allocate Maintenance to Finishing is 110,000/250,000 (or 44%) × $300,000 = $132,000.
Step-Down Method
Costs before Allocated allocation costs Maintenance $ 300,000 ($300,000) Human Resources $2,160,000 $ 36,000 Assembly $1,700,000 $132,000 Finishing $ 900,000 $132,000
Step-Down Method
Human Resources costs to be allocated become $2,160,000 + $36,000 = $2,196,000.
The ratio to allocate the $2,196,000 Human Resources costs to:
Assembly is 48/72 × $2,196,000 = $1,464,000.
Finishing is 24/72 × $2,196,000 = $732,000.
Step-Down Method
Costs before Allocated Allocated allocation costs costs Human Resources: $2,160,000 36,000 (2,196,000) Assembly: $1,700,000 132,000 1,464,000 Finishing: $ 900,000 132,000 732,000
Step-Down Method
Total cost after allocation:
Assembly Department = $1,700,000 + $132,000 + $1,464,000 = $3,296,000
Finishing Department = $900,000 + $132,000 + $732,000 = $1,764,000
Reciprocal
M HR A F Maintenance - 12% 44% 44% Human Resources 10% - 60% 30%
Maintenance cost = $300,000 + .10P
Human Resource cost = $2,160,000 + .12M
Reciprocal
Maintenance cost (M) = $300,000 + .10($2,160,000 + .12M)
M = $300,000 + $216,000 + .012M
.988M = $516,000
M = $522,267
Reciprocal
HR = $2,160,000 + .12($522,267)
HR = $2,160,000 + $62,672
HR = $2,222,672
Reciprocal
M HR A F Before allocation: $300,000 $2,160,000 $1,700,000 $ 900,000 Allocation: (522,267) 62,672 229,797 229,797 Allocation: 222,267 ($2,222,672) 1,333,603 666,802 Total $3,263,400 $1,796,599
Total cost Assembly Department: $3,263,400 Total cost Finishing Department: $1,796,599
Overview of Methods
Overhead rate for the Assembly Department is determined using direct labor cost as a denominator.
Overhead rate for the Finishing Department is determined using machine hours as the denominator.
Comparison of Methods
Assembly Finishing Direct labor cost: $698,880 $349,440 Machine hours: 24,000 23,500
What are the various overhead rates using the three methods?
Overhead Rates Direct Method
Assembly: $3,290,000 ÷ $698,880 direct labor costs = 471% of direct labor costs
Finishing: $1,770,000 ÷ 23,500 = $ per machine hour
Overhead Rates Step-Down Method
Assembly: $3,296,000 ÷ $698,880 direct labor costs = 472% of direct labor cost
Finishing: $1,764,000 ÷ 23,500 = $ per machine hour
Overhead Rates Reciprocal
Assembly: $3,263,400 ÷ $698,880 direct labor costs = 467% of direct labor cost
Finishing: $1,796,599 ÷ 23,500 = $ per machine hour
Comparison of Rates
Assembly Finishing Direct method: 471% $ Step-down method: 472% $ Reciprocal method: 467% $
End of Chapter 14
