金陵科技学院-管理会计（双语）Lecture 9.pptVIP

3. Lecture exemple THREE METHODS OF SERVICE DEPARTMENT ALLOCATION DIRECT METHOD The simplest and most widely used method. Allocates all service department costs to production departments ONLY. DIRECT METHOD The direct method is assuming (though this is NOT reality) that the use of the service departments is: A: ignore 40 used by B, therefore total use = 160 (100+60) B: ignore 150 used by A, therefore total use = 150 (30+120) DIRECT METHOD STEP DOWN METHOD THREE METHODS OF SERVICE DEPARTMENT ALLOCATION STEP DOWN METHOD “Once SD costs are allocated out, you cannot allocate them back in” Firms must choose the order in which to allocate SD costs, like: Cost/The number of other SDs service/The percentage of time spent servicing other SDs, etc. STEP DOWN METHOD For the lecture example, because B is allocated first : B: 150 + 30 + 120 = 300 A: ignore 40 used by B, because costs have been allocated out of B, so can’t allocate back in, therefore = 160 (100+60) STEP DOWN METHOD STEP DOWN METHOD QUESTION: If A had been allocated first, what would be happen ? RECIPROCAL SERVICES METHOD  THREE METHODS OF SERVICE DEPARTMENT ALLOCATION RECIPROCAL SERVICES METHOD (cf.P88) (1) Calculate the total amount of costs for each service department, and then (2) Allocate the SD costs into PDs. Step1: Let A = total cost of A, and B = total cost of B. The relationships are:? A uses 150/300, i.e. 50%, of B B uses 40/200, i.e. 20%, of A Set the costs up as simultaneous equations: A = $10,000 + .5B ..... (i) A=$13,333 B = $4,000 + .2A ....... (ii) B=$6,667 RECIPROCAL SERVICES METHOD  Step 2: RECIPROCAL SERVICES METHOD USING BILLING RATES Calculate billing rates (charge-out rates) and use these rates to allocate the SD costs to PDs: Total amount of SD cost that will be allocated across other dpt Total usage of SD that is recognised in the allocation method USING BILLING RATES Both the