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9 Cards in this Set

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Production Departments
Directly responsible for creating the products or services sold to customers
Examples
Assembly Department
Finishing Department
Machining Department
Production Departments
Directly responsible for creating the products or services sold to customers
Examples
Assembly Department
Finishing Department
Machining Department
Support Departments
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
Cost Allocation Steps
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
Production Department Overhead
Production department overhead consists of two parts:
overhead directly associated with the producing department
overhead allocated to the producing department from the support departments
Basic Cost Allocation Guidelines
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
Support Department Cost Driver Examples
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
Allocating One Department’s Cost to Another
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
Allocating One Department’s Cost to Another
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