Maliyet Muhasebesi Cost Allocation Corporate and Support Department Costs 14 - 1 Cost Allocation: Corporate and Support Department Costs Chapter 0514 - 2 Introduction This chapter emphasizes the allocation of * costs to divisions, plants, departments, and contracts. This chapter also addresses the allocation * of costs to products and customers.14 - 3 Learning Objective 1 Outline three purposes for allocating costs to cost objects14 - 4 Purposes of Cost Allocation Indirect costs are costs that be traced to the * cost object in an economically feasible (cost effective) way. Why do managers allocate indirect costs to * these cost objects?14 - 5 Purposes of Cost Allocation There are three essential purposes of cost * allocation: To provide information for economic decisions 1 To motivate managers and other employees 2 To measure income and assets for reporting to 3 external parties14 - 6 1-Provide Information What economic decisions may require cost * allocation information? To decide whether to add a new product – To decide whether to manufacture a – component part or to purchase it from another manufacturer To decide on the selling price for a product –14 - 7 2-Motivation Managers and employees need to be * encouraged to design products that are simpler to manufacture or less costly to service. Sales representatives need to be motivated to * push high-margin products or services.14 - 8 3-Reporting Inventory costs must be determined for * financial reporting and for reporting to tax authorities. Under generally accepted accounting * principles, inventoriable costs include manufacturing costs but exclude research and development, marketing, distribution, and customer service costs.14 - 9 Learning Objective 2 Guide cost-allocation decisions using appropriate criteria14 - 10 Criteria to Guide Cost- Allocation Decisions Cause-and-effect: Using this criterion, * managers identify the variable or variables that cause resources to be consumed. For example, managers may use hours of * testing as the variable when allocating the costs of quality-testing areas to products. Allocation based on this criterion are likely * to be the most credible to operating personnel.14 - 11 Criteria to Guide Cost- Allocation Decisions Benefits-received: Using this criterion, * managers identify the beneficiaries of the outputs of the cost object. The costs of the cost object are allocated * among the beneficiaries in proportion to the benefits each receives. For example, the cost of a corporate-wide * advertising program may be allocated on the basis of division revenues.14 - 12 Cost-Benefit Approach Companies place great importance on the cost- * benefit approach when designing and implementing their cost-allocation system. The costs of designing and implementing a * system are highly visible. The benefits from using a well-designed * system are difficult to measure and are frequently less visible.14 - 13 Learning Objective 3 Discuss key decisions faced when collecting costs in indirect cost pools14 - 14 Allocating Corporate Costs Some companies allocate all corporate costs to * divisions because... it sparks interest on the part of division – managers regarding how corporate costs are planned and controlled, and... to calculate the full costs of products. –14 - 15 Allocating Corporate Costs Other companies do not allocate corporate * costs to divisions. They believe that these costs are not * controllable by division managers. Other companies allocate only those costs for * which there is widespread agreement, such as human resources.14 - 16 Cost Allocation and Costing Systems Costs incurred in different parts of an * organization can be assigned, and then reassigned, when costing products, services, customers, or contracts. Sandy Company manufactures clothes washers * and dryers in two divisions: Clothes Washer Division in Toledo (CWD) – Clothes Dryer Division in Dayton (CDD) –14 - 17 Cost Allocation and Costing Systems Sandy Corporation collects costs at the * following levels in its organization: Corporate costs: * Treasury costs: $600,000 interest on debt used – to finance the construction of new assembly equipment which cost $4,000,000 in the Toledo Division and $2,000,000 in the Dayton Division.14 - 18 Cost Allocation and Costing Systems Human resources costs: $1,200,000 in – recruitment and ongoing employee training and development. Corporate administration costs: $4,800,000 – in executives salaries, rent, and general administration. 14 - 19 Allocating Corporate Costs If Sandy Corporation allocates corporate costs * to divisions, which allocation basis should it use? The one that has the best cause-and effect * relationship with costs. Which allocation basis should Sandy * Corporation use to allocate treasury costs? Cost of new Assembly Department equipment –14 - 20 Allocating Corporate Costs Treasury costs: $600,000 * Toledo Division: * $600,000 × ($4,000,000 ÷ $6,000,000) = $400,000 Dayton Division: * $600,000 × ($2,000,000 ÷ $6,000,000) = $200,00014 - 21 Allocating Corporate Costs Sandy Corporation analysis indicates that * the demand for corporate human resource management costs for recruitment and training varies with direct labor costs. These costs are allocated to divisions on the * basis of the total direct labor costs incurred in each division.14 - 22 Allocating Corporate Costs Suppose direct labor costs in the Toledo * Division are $1,200,000 and $1,800,000 in the Dayton Division. How does Sandy Corporation allocate its * $1,200,000 of human resources costs?14 - 23 Allocating Corporate Costs Toledo Division: * $1,200,000 × ($1,200,000 ÷ $3,000,000) = $480,000 Dayton Division: * $1,200,000 × ($1,800,000 ÷ $3,000,000) = $720,000 Sandy Corporation does not allocate corporate * administration costs to the divisions.14 - 24 Allocating Corporate Costs Toledo Dayton Treasury costs: $600,000 (2/3) and (1/3) $400,000 $200,000 Human resources costs: $1,200,000 (40%) and (60%) 480,000 720,000 Total allocated to divisions $880,000 $920,00014 - 25 Learning Objective 4 Distinguish among direct, step- down, and reciprocal methods of allocating support department costs14 - 26 Manufacturing Overhead Support Departments Operating Departments Support Departments A Mamul ü B Mamul ü 1 1 1 2 2 3 3 1. Allocation 2. Allocation 3. Allocation Cost Allocation14 - 27 Allocating Support Departments Costs Organizations distinguish between operating * departments and support departments. An operating department (a production * department in manufacturing companies) adds value to a product or service. A support department (service department) * provides the services that assist other operating and support departments in the organization.14 - 28 Allocating Support Departments Costs Three methods are widely used to allocate the * costs of support departments to operating departments: Direct allocation method 1 Step-down method 2 Reciprocal method 314 - 29 Allocating Support Departments Costs Direct method : Allocates support department * costs to operating departments only. Step-down (sequential allocation) method : * Allocates support department costs to other support departments and to operating departments.14 - 30 Allocating Support Departments Costs Reciprocal allocation method : Allocates costs * by including the mutual services provided among all support departments. The direct method and the step-down method * are less accurate than the reciprocal method when support departments provide services to one another reciprocally.14 - 31 Allocating Support Departments Costs The following information pertains to the * Toledo Division of Sandy Corporation: Recall that the Toledo Division has two * operating departments – Assembly and Finishing, and two support departments – Maintenance and Human Resources.14 - 32 Allocating Support Departments Costs Total square feet = 255,000 * Total number of employees = 95 * Maintenance is allocated using square feet. * Human Resources is allocated using number * of employees.14 - 33 Allocating Support Departments Costs Human Maintenance Resources Budgeted costs before allocations: $300,000 $2,160,000 Square feet: 5,000 30,000 Number of employees: 8 1514 - 34 Allocating Support Departments Costs Assembly Finishing Budgeted costs before allocations: $1,700,000 $900,000 Square feet: 110,000 110,000 Number of employees: 48 2414 - 35 Direct Method Allocates support department costs to operating departments only. Support Departments Human Res. Maintenance Operating Departments Assembly Finishing14 - 36 Direct Method... allocates support department costs to operating – departments only. The allocation ratio for allocating Maintenance * to Assembly is 110,000/220,000 x $300,000 = $150,000. The allocation ratio for allocating Maintenance * to Finishing is 110,000/220,000 x $300,000 = $150,000.14 - 37 Direct Method The allocation ratio for allocating Human * Resources to Assembly is 48/72 × $2,160,000 = $1,440,000. The allocation ratio for allocating Human * Resources to Finishing is 24/72 × $2,160,000 = $720,000.14 - 38 Direct Method Assembly Finishing Original costs: $1,700,000 $ 900,000 Maintenance Allocated: 150,000 150,000 Human Resources Allocated: 1,440,000 720,000 Total $3,290,000 $1,770,00014 - 39 Step-Down Method... allocates support department costs to other – support departments and to operating departments. Which support department should be allocated * first? The support department providing the greatest * percentage of support to other support departments is allocated first.14 - 40 Step-Down Method Allocates support department costs to other support and operating departments. Support Departments Human Res. Maintenance Operating Departments Assembly Finishing14 - 41 Step-Down Method Maintenance provides 12% of its services to * Human Resources. Human Resources provides 10% of its services * to Maintenance. The ratio to allocate Maintenance to Human * Resources is 30,000/250,000 (or 12%) × $300,000 = $36,000.14 - 42 Step-Down Method The ratio to allocate Maintenance to Assembly * is 110,000/250,000 (or 44%) × $300,000 = $132,000. The ratio to allocate Maintenance to Finishing * is 110,000/250,000 (or 44%) × $300,000 = $132,000.14 - 43 Step-Down Method Costs before Allocated allocation costs Maintenance $ 300,000 ($300,000) Human Resources $2,160,000 $ 36,000 Assembly $1,700,000 $132,000 Finishing $ 900,000 $132,00014 - 44 Step-Down Method Human Resources costs to be allocated * become $2,160,000 + $36,000 = $2,196,000. The ratio to allocate the $2,196,000 Human * Resources costs to: Assembly is 48/72 × $2,196,000 = $1,464,000. – Finishing is 24/72 × $2,196,000 = $732,000. –14 - 45 Step-Down Method Costs before Allocated Allocated allocation costs costs Human Resources: $2,160,000 36,000 (2,196,000) Assembly: $1,700,000 132,000 1,464,000 Finishing: $ 900,000 132,000 732,00014 - 46 Step-Down Method Total cost after allocation: * Assembly Department = $1,700,000 + * $132,000 + $1,464,000 = $3,296,000 Finishing Department = $900,000 + $132,000 * + $732,000 = $1,764,00014 - 47 Reciprocal Method Allocates costs by including the mutual services provided among all support departments. Support Departments Human Res. Maintenance Operating Departments Assembly Finishing14 - 48 Reciprocal M HR A F * Maintenance - 12% 44% 44% Human Resources 10% - 60% 30% Maintenance cost = $300,000 + .10HR * Human Resource cost = $2,160,000 + .12M *14 - 49 Reciprocal Maintenance cost (M) * = $300,000 + .10($2,160,000 + .12M) M = $300,000 + $216,000 + .012M * .988M = $516,000 * M = $522,267 *14 - 50 Reciprocal HR = $2,160,000 + .12($522,267) * HR = $2,160,000 + $62,672 * HR = $2,222,672 *14 - 51 Reciprocal M HR A F Before allocation: $300,000 $2,160,000 $1,700,000 $ 900,000 Allocation: (522,267) 62,672 229,797 229,797 Allocation: 222,267 ($2,222,672) 1,333,603 666,802 Total $3,263,400 $1,796,599 Total cost Assembly Department: $3,263,400 Total cost Finishing Department: $1,796,59914 - 52 Overview of Methods Overhead rate for the Assembly Department * is determined using direct labor cost as a denominator. Overhead rate for the Finishing Department * is determined using machine hours as the denominator.14 - 53 Comparison of Methods Assembly Finishing * Direct labor cost: $698,880 $349,440 Machine hours: 24,000 23,500 What are the various overhead rates using the * three methods?14 - 54 Overhead Rates Direct Method Assembly: $3,290,000 ÷ $698,880 direct labor * costs = 471% of direct labor costs Finishing: $1,770,000 ÷ 23,500 = $75.32 per * machine hour14 - 55 Overhead Rates Step- Down Method Assembly: $3,296,000 ÷ $698,880 direct labor * costs = 472% of direct labor cost Finishing: $1,764,000 ÷ 23,500 = $75.06 per * machine hour14 - 56 Overhead Rates Reciprocal Assembly: $3,263,400 ÷ $698,880 direct labor * costs = 467% of direct labor cost Finishing: $1,796,599 ÷ 23,500 = $76.45 per * machine hour14 - 57 Comparison of Rates Assembly Finishing Direct method: 471% $75.32 Step-down method: 472% $75.06 Reciprocal method: 467% $76.45