ppak kuliah 3
TRANSCRIPT
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PowerPoint Presentation by
Gail B. WrightProfessor Emeritus of Accounting
Bryant University
Copyright 2007 Thomson South-Western, a part of The
ThomsonCorporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
MANAGEMENT
ACCOUNTING
8thEDITION
BY
HANSEN & MOWEN
7SUPPORT-DEPARTMENT COSTALLOCATION
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ALLOCATION: Definition
A means of dividing a pool of
costs & assigning it to various
subunits.
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COST ALLOCATION
While cost allocation does not affecttotal product cost, it will affectpricing & profitability of individualproducts depending on methodused.
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COMMON COSTS: Definition
Mutually beneficial costs whichoccur when the same resource is
used in output of 2 or more
services or products.
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TYPES OF DEPARTMENTS
Producing departments are directlyresponsible for creating products,services sold. Support departmentsprovide essential support servicesfor producing departments.
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OBJECTIVES OF
ALLOCATION
To obtain a mutually agreeable price
To compute product-line profitabilityTo predict the economic effects of planning &
control
To value inventoryTo motivate managers
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COMPETITIVE PRICING
Requires understanding costs
Overstating leads to loss of business
Understating produces losses
Leads to evaluating product or service mix
Dropping some services
Reallocating resources
Repricing
LO 1
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Department that uses the functions ofservice departments.
Department that provides service toother subunits in the organization.
Cost center whose costs are chargedto other departments in the
organization.
Service Department Cost Allocation
Service Department User Department
Intermediate Cost Center
Cost center, such as a production ormarketing department, whose costs
are not allocated to another costcenter.
Final Cost Center
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Service Department Cost Allocation
Service Department: InformationSystems (S1)
Service Department:Administration (S2)
User Department: HilltopMine (P1)
User Department: PacificMine (P2)
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Service Department Cost Allocation Continued
Carlyle Coal Company
Information Systems (S1)
Total S1 Costs $800,000
Allocation Base: Computer Hours
User Department Number of Hours Used Percent of Total
Administration (S2) 100,000 50%Hilltop Mine (P1) 20,000 10%Pacific Mine (P2) 80,000 40%
Totals 200,000 100%
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Service Department Cost Allocation Continued
Carlyle Coal CompanyAdministration (S2)
Total S2 Costs $5,000,000
Allocation Base: EmployeesUser Department Employees Percent of Total
Information Systems (S1) 2,000 20%Hilltop Mine (P1) 5,000 50%Pacific Mine (P2) 3,000 30%
Totals 10,000 100%
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Direct Method
Charges costs of service departments to userdepartments without making allocations
between or among service departments.
Direct Method
S1 S2
P1 P2
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Cost Allocation: Direct Method
Service Department Cost Allocation
Service Department Direct Cost P1 P2 Total
S1 800,000$ 20.0% a 80.0% 100.0%S2 5,000,000$ 62.5%
b37.5% 100.0%
Percent Allocable to
a 20% = 20,000 hours/(20,000 hours + 80,000 hours)b 62.5% = 5,000 employees/(5,000 employees + 3,000 employees)
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Service Department Cost Allocation
Service Department Direct Cost P1 P2 Total
S1 800,000$ 20.0%a
80.0% 100.0%
S2 5,000,000$ 62.5%b
37.5% 100.0%
Percent Allocable to
a 20% = 20,000 hours/(20,000 hours + 80,000 hours)b 62.5% = 5,000 employees/(5,000 employees + 3,000 employees)
S1 800,000$ 160,000$ c 640,000$ 800,000$
S2 5,000,000$ 3,125,000$ d 1,875,000$ 5,000,000$
Total allocated 5,800,000$ 3,285,000$ 2,515,000$ 5,800,000$
Cost Allocation: Direct Method Continued
c$160,000 = 20% x $800,000
d$3,125,000 = 62.5% x $5,000,000
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Step Method
Allocates some service department costs toother service departments.
Once an allocation is made from a service department no further allocations are
made back to that service department. Generally allocate in order of proportionof services provided to other service departments.
S1 S2
P1 P2
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Cost Allocation: Step Method
Service Department Cost AllocationService Department Direct Cost S1 S2 P1 P2 Total
S1 800,000$ 0% 50%a
10.0%b
40.0%c
100.0%
S2 5,000,000$ 0% 0% 62.5%d
37.5%e
100.0%
Percent Allocable to
a50% = 100,000 hours/(100,000 hours + 20,000 hours + 80,000 hours)
b 10% = 20,000 hours/(100,000 hours + 20,000 hours + 80,000 hours)c 40% = 80,000 hours/(100,000 hours + 20,000 hours + 80,000 hours)d 62.5% = 5,000 employees/(5,000 employees + 3,000 employees)e 37.5% = 3,000 employees/(5,000 employees + 3,000 employees)
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Cost Allocation: Step Method Continued
f= 50% x $800,000
g= 10% x $800,000h= 40% x $800,000i= 62.5% x $5,400,000j= 37.5% x $5,400,000
Service Department Cost Allocation
k$5,800,000 of service department
costs were ultimately allocated toproduction departments.
From S1 S2 P1 P2 Total
800,000$ 5,000,000$ 5,800,000$ k
S1 (800,000) 400,000 f 80,000 g 320,000 h
S2 0 (5,400,000) 3,375,000 i 2,025,000 j
Total 0 0 3,455,000$ 2,345,000$ 5,800,000$ k
To
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Reciprocal MethodL.O. 4 Allocate service department costs using the reciprocal method.
Recognizes all services provided by anyservice department, including servicesprovided to other service departments.
Reciprocal method accounts for cost flowsamong service departments providingservices to each other.
Requires a simultaneousequation solution.
S1 S2
P1 P2
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The Simultaneous Equation
1. Write the costs of each servicedepartment in equation form.
Total Service
Department
Direct cost of the
service department
Cost allocated from other
service departments
2. Solve equations
simultaneously using
matrix algebra.
= +
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Cost Allocation: Reciprocal Method
S2 = $5,000,000 + $400,000 + 0.10 S2
S2 = $6,000,000
1. S1 = $800,000 + 0.20 S2
2. S2 = $5,000,000 + 0.50 S1
S2 = $5,000,000 + 0.50 $800,000 + 0.20 S2
.90 S2 = $5,400,000
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Cost Allocation: Reciprocal Method Continued
S1 = $800,000 + 0.20 $6,000,000
S1 = $2,000,000
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Reciprocal Method: An Exampled Continued
Service Department Cost Allocation
Service Department Total Costs S1 S2 P1 P2 Total
S1 2,000,000$ 0% 50% a 10.0% b 40.0% c 100.0%
S2 6,000,000$ 20% d 0% 50.0% e 30.0% f 100.0%
Percent Allocable to
a50% = 100,000 hours/(100,000 hours + 20,000 hours + 80,000 hours)
b10% = 20,000 hours/(100,000 hours + 20,000 hours + 80,000 hours)
c40% = 80,000 hours/(100,000 hours + 20,000 hours + 80,000 hours)
d20% = 2,000 employees/(2,000 employees + 5,000 employees + 3,000 employees)
e50% = 5,000 employees/(2,000 employees + 5,000 employees + 3,000 employees)
f30% = 3,000 employees/(2,000 employees + 5,000 employees + 3,000 employees)
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Reciprocal Method: An Exampled Continued
Service Department Cost Allocation
From S1 S2 P1 P2 Total
Direct costs 800,000$ 5,000,000$ 5,800,000$ i
S1 (2,000,000) a 1,000,000 b 200,000 c 800,000 d
S2 1,200,000e
(6,000,000)f
3,000,000g
1,800,000h
Total 0 0 3,200,000$ 2,600,000$ 5,800,000$ i
To
a Total costs of S1b Costs allocated from S1 (50% x $2,000,000)c
10% x $2,000,000d 40% x $2,000,000e Costs allocated from S2 (20% x $6,000,000)f Total costs of S2g 50% x $6,000,000h 30% x $6,000,000
i$5,800,000 of service department
costs were ultimately allocated toproduction departments.
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Comparison of Direct, Step and Reciprocal Method
Method Hilltop Mine Pacific Mine Total
Direct 3,285,000$ 2,515,000$ 5,800,000$
Step 3,455,000 2,345,000 5,800,000Reciprocal 3,200,000 2,600,000 5,800,000
Cost Allocated to
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Joint Cost
Joint Product
Split-Off Point
Cost of a manufacturing process withtwo or more outputs.
Outputs from a common input andcommon production process.
Stage of processing that separatestwo or more products.
Joint Cost
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Joint Cost ContinuedJoint Cost Flows
Mining Costs:$270,000
Split-offPoint
Hi-Grade Coal:15,000 units
Sales Value$300,000
Lo-Grade Coal:30,000 units
Sales Value$450,000
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Allocation of Joint CostsL.O. 5 Explain why joint costs are allocated.
Evaluating executive
performance
Valuing
products
Net realizable
value method
Physical quantities
method
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ACCOUNTING FOR JOINT
PRODUCT COSTS
LO 5
3 methods
Physical units: joint costs distributed on basis of
physical units
Sales-value-at-split-off: joint costs distributed on
basis of sales value at split-off
Net realizable value: joint costs distributed on
basis of hypothetical sales value
By-products: because insignificant sales value,
no joint cost allocation