Managerial Accounting: An Introduction To Concepts, Methods, And Uses

1
Managerial Accounting An Introduction To
Concepts, Methods, And Uses

• Chapter 13
• Allocating Costs
• to Responsibility Centers

Maher, Stickney and Weil
2
Learning Objectives (Slide 1 of 2)

• Explain what comprises common (or indirect)
  costs.
• Explain why companies allocate common costs to
  departments and products.
• Describe how to allocate service department costs
  to production departments.
• Explain why activity-based costing is used to
  allocate service department costs.

3
Learning Objectives (Slide 2 of 2)

• Identify methods of allocating marketing and
  administrative costs to departments.
• Explain how to allocate joint-process costs.
• Explain why joint-process costs are allocated.

4
Define Common Costs
5
Define Service Departments
6
What is the goal of cost allocation?

• Cost allocation is a three step process List the
  three steps.

7
Draw the Overhead Distribution and Allocation
8
Allocating Service Department Costs

• Allocating service department costs to production
  departments can be accomplished by several
  methods
• For example, the step method allocates costs in
  steps as follows
• Begin with the service dept that receives the
  smallest amount of services from other service
  depts.

9
Allocating Service Department Costs

• Allocate its costs to other service and
  production departments
• Distribute the total costs of the service dept
  receiving the next smallest amount of service
  from other depts. and so on until all service
  dept costs have been allocated to production
  depts.

10
Activity-Based Costing

• A more accurate approach to allocate service dept
  costs might use ABC principles
• This approach involves
• Measuring each service depts resource spending
  by unit, batch, product, customer, and facility

11
Activity-Based Costing

• Identify and measure activities demanded by other
  depts. that require support service
• Identify appropriate cost drivers and calculate
  cost-driver rates
• Allocate service dept costs based on other
  departments usage of cost-driver bases

12
Marketing and Administrative Expenses

• Management will often allocate marketing and
  administrative costs to departments
• Bases for allocating such costs might include the
  following
• Cost Basis
• Storage Costs Floor Space
• Handling Costs Tonnage Handled
• Delivery Expenses Number of Miles Operated

13
Define a Joint-Process Cost
14
Joint-Process Costs

• Joint-process costs must be allocated to joint
  products to provide managers with product cost
  information for decision making performance
  evaluation

15
What are the two major methods of allocating
joint costs?
16
Explain Net Realizable Method
17
Explain the Physical Quantities Method
18
Why Allocate Joint-Process Costs?
19

• If you have any comments or suggestions
  concerning this PowerPoint Presentation for
  Managerial Accounting, An Introduction To
  Concepts, Methods, And Uses, please contact
• Dr. Michael Blue, CFE, CPA, CMA
• blue_at_bloomu.edu
• Bloomsburg University of Pennsylvania