Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-38 (continued -2)
The Reciprocal Method
7-41
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-42
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-39 Departmental Cost Allocation (50 Min)
Total Service Dept.
Cost Allocated
Total Production Cost
Direct Method
Programming $57,777.78 $217,777.78
Consulting 21,111.77 211,111.11
Training 41,111.77 166,111.11
Step Method (info
systems first)
Programming $56,888.89 $216,888.89
Consulting 23,555.56 213,555.56
Training 39,555.56 164,555.56
Step Method
(facilities first)
Programming $58,000 $218,000
Consulting 20,500 210,500
Training 41,500 166,500
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Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-39 (continued -1)
1.a. The Direct Method
X
DEPARTMENTAL ALLOCATION BASES
Info Systems
percent
7-44
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
Facilities
percent
FIRST PHASE: Trace Direct Costs and Perform Initial Allocation of Indirect Costs
Totals for All Departments
SECOND PHASE: Reallocate Service Department Costs to Production Departments:
The Direct Method
Info Systems Service % to produ
Allocation %
method
Allocation amoun
Facilities Service % to produ
Allocation %
method
Allocation amoun
Total for Allocated Costs from Service Depts to Producing Depts
Totals for Production Departments
7-45
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-39 (continued -2)
1.b The Step Method (Information Systems Goes First)
7-46
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-39 (continued -3)
1.b The Step Method (Facilities Goes First)
7-47
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-39 (continued -4)
1.c. The Reciprocal Method
7-48
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-39 (continued -5)
2. Rather than to allocate costs, Data Performance might consider
using the market prices for these services. The use of market prices
would force the service departments to be competitive with outside
suppliers of the services.
7-49
Education.
Chapter 7 – Cost Allocation: Departments, Joint Products, and By-Products
7-40 Departmental Cost Allocation (50 min)
The Direct Method
7-40 (continued -1) The Step Method
7-50