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9 Cards in this Set
- Front
- Back
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Production Departments
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Directly responsible for creating the products or services sold to customers
Examples Assembly Department Finishing Department Machining Department |
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Production Departments
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Directly responsible for creating the products or services sold to customers
Examples Assembly Department Finishing Department Machining Department |
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Support Departments
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Provide essential support services for production departments
Costs of providing these support services are part of total product cost Examples Maintenance Department Personnel Department Engineering Department |
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Cost Allocation Steps
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Three steps in allocating costs:
trace all overhead costs to a support or producing department allocate support-department costs to the producing departments allocate overhead costs to units of individual products using a predetermined overhead rate |
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Production Department Overhead
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Production department overhead consists of two parts:
overhead directly associated with the producing department overhead allocated to the producing department from the support departments |
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Basic Cost Allocation Guidelines
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As nearly as possible, cost drivers (causal factors) should be used as the basis for cost allocation
Budgeted or expected costs, not actual costs, should be allocated Costs should be allocated by behavior; fixed costs and variable costs should be allocated separately |
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Support Department Cost Driver Examples
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Support Dept. Example Driver
Maintenance # of machine hours Engineering # of change orders Payroll # of employees Cafeteria # of employees Power # of kilowatt hours Quality # of quality inspections |
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Allocating One Department’s Cost to Another
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Support costs should be allocated using factors that explain or relate to the consumption of the services
If a single charging rate is used, fixed costs and variable costs are combined and then divided by estimated activity (variable + fixed costs) Total estimated usage |
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Allocating One Department’s Cost to Another
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Support costs should be allocated using factors that explain or relate to the consumption of the services
If a single charging rate is used, fixed costs and variable costs are combined and then divided by estimated activity (variable + fixed costs) Total estimated usage |
