MA Topic 2 03102022

02/10/2022
Universidade do Minho
Esc ola de Economia e Gestão
Topic 2: Allocation of support-

department costs
Ofélia Pinto
LEARNING OBJECTIVES: Chapter 13 Universidade do Minho

• Distinguish the single-rate method from the dual-rate

method
• Describe the way in which the choice between budgeted
and actual cost-allocation rates affects the uncertainty
that users face
• Allocate support-department costs using the direct
method, the step-down method, and the reciprocal
method
Ofélia Pinto
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Allocating costs of a support department to Universidade do Minho

operating departments 3
• Operating (production) department – directly adds

value to a product or service.
• Support (service) department – provides the services
that assist other internal departments in the company.
Ofélia Pinto
Why allocate support department costs? Universidade do Minho

1. To provide information to support decision-making in

relation to the use of support activities
2. To provide information to help department managers

understand the economic consequences of their
decisions regarding support services
3. To provide information to motivate department

managers and other employees to manage support
department costs more effectively
4. To provide information for evaluating responsibility

centre and/or manager performance
Ofélia Pinto
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Allocation of support department costs Universidade do Minho

• Support department costs need to be allocated to the

cost objects that cause those costs
o These cost objects include -
• Other departments that use support services
• And ultimately, products or services
• Why allocate these costs?

o Remember the uses for cost allocations from earlier
lecture?
Ofélia Pinto
5
What are the issues? Universidade do Minho

Five (5) issues in allocating support department costs

1. Which allocation bases should be used to allocate support
department costs?
2. Should single or dual rates be used?
3. Should budgeted or actual usage of support departments be
used to allocate costs?
4. Should budgeted or actual support department costs be
allocated?
5. When there are multiple departments, which method of
allocating support department costs should be used?
Ofélia Pinto
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operating departments
Single-rate and dual-rate methods

Single-rate method – allocates costs in each cost pool (service
department) to cost objects (production departments) using the
same rate per unit of a single allocation base.
• No distinction is made between fixed and variable costs in this
method.
• Is this reasonable? – Sometimes fixed costs can be incorrectly
allocated (over or under-allocated if a single rate is used)
Ofélia Pinto
operating departments
Dual-rate method:
• segregates costs within each cost pool into two segments
‒ a variable-cost pool
‒ a fixed-cost pool
• each pool uses a different cost-allocation base
• treats fixed and variable costs more realistically, but is
more complex to implement.
Ofélia Pinto
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When allocating costs to departments using Universidade do Minho
dual rates
• Fixed Costs are incurred to provide support departments

with the ability to satisfy the demands of the operating
departments in the long-term
• In any given month operating departments may not
use all of a support department’s capacity available
– However over long period time it is assumed they
will
• Therefore long-term average usage of support

departments is likely to represent the “cause” of Fixed Costs
– “Average actual capacity” or “Practical capacity”
Ofélia Pinto
When allocating costs to departments using

dual rates
10
• Using Dual Rates:

Need to determine allocation ratios (allocation bases) for
each operating department based on practical capacity
proportions (i.e. total capacity utilized by each
department out of 100% - Dept 1 = 45%; Dept 2 = 55%)
Fixed costs will not be “unitized” when allocation base

ratios are used to allocate fixed costs
– Ratios stay constant until long-term capacity changes
Ultimately dual rates provide more accurate support to
department cost allocation, as they use the “cause and
effect” rule
Ofélia Pinto
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Under either method, allocation of support

costs can be based on:
– budgeted overhead rate and budgeted
hours, or
– budgeted overhead rate and actual
hours.
Ofélia Pinto
11

Allocation based on the demand for (or usage of)

computer services
• Single-rate method ‒ a combined budgeted rate is
used for fixed and variable costs.
• Dual-rate method ‒ cost-allocation bases must be
chosen for both the variable- and fixed-cost pools.
Ofélia Pinto
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If you were to use the same option throughout:

– either option 1, budgeted rates and budgeted hours of
usage, or
– option 2, budgeted rates and actual hours of usage,
then the single-rate and dual-rate methods would yield
identical results.
Ofélia Pinto
13

Allocation based on the supply of capacity

• When practical capacity is used to allocate costs, the single-rate
and the dual-rate methods allocate, respectively, only the actual
fixed-cost resources used, or the budgeted fixed-cost resources
to be used.
• Using practical capacity to allocate costs:
‒ focuses attention on managing unused capacity
‒ avoids burdening the user divisions with the cost of unused
capacity.
Ofélia Pinto
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Budgeted usage, actual usage and capacity-level

allocation bases
• Actual usage may be equal to, greater than, or less than
budgeted usage.
• Allocation may be based on:
‒ budgeted usage
‒ actual usage
‒ practical capacity.
• When budgeted usage is the allocation base, user divisions
know their allocated costs in advance. In all three cases,
regardless of actual usage, the fixed-cost allocations are
the same. Ofélia Pinto
15

Budgeted versus actual rates

Choosing between actual and budgeted rates:
• budgeted rate is known at the beginning of the
period
• actual rate will not be known with certainty until
the end of the period.
Ofélia Pinto
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Example – Central Computer department Universidade do Minho

17
Practical Capacity: 18.750 hours

Fixed costs : $3.000.000
Budgeted long run usage in hours:
Microcomputer division 8.000 hours
Peripheral equipment division 4.000 hours
12.000 hours
Budgeted variable costs: $200
Actual usage
Microcomputer division 9.000 hours
Peripheral equipment division 3.000 hours
12.000 hours
Ofélia Pinto
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Budgeted usage: 8000h / (8000+4000) = 0,6667 = 2/3 => 2/3*3000000 =

2000000
3.000.000/18.750 = 160
Ofélia Pinto
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Allocating costs of multiple support Universidade do Minho

departments 19
Three methods of allocating the costs of reciprocal

support departments are:
 direct method
 step-down method
 reciprocal method.
Ofélia Pinto
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departments 20
Direct method:
• allocates support costs only to operating
departments
• no interaction between support departments
prior to allocation.
Ofélia Pinto
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departments 21
•Data used in cost allocation illustrations:
Ofélia Pinto
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departments 22
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departments 23
Ofélia Pinto
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departments 24
Step-down method:
• allocates support costs to other support departments
and to operating departments that partially recognize
the mutual services provided among all support
departments
• one-way interaction between support departments prior
to allocation.
Ofélia Pinto
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departments 25
Step-down method:
Ofélia Pinto
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Allocating costs of multiple support departments26

Ofélia Pinto
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departments
27
Reciprocal method:
• allocates support department costs to operating
departments by fully recognizing the mutual services
provided among all support departments
• full two-way interaction between support departments prior
to allocation.
Ofélia Pinto
27

departments 28
Reciprocal method: Equations

P = 6.300.000 + 10% I
I = 1.452.150 + 20% P
I = 1.452.150 + 20% (6.300.000 + 10% I)

I = 1.452.150 + 1.260.000 + 0,02I
0,98 I = 2.712.150
I = 2.767.500
P = 6.300.000 + 276.750
Ofélia Pinto
P = 6.576.750
28
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departments 29
Reciprocal method:
Ofélia Pinto
29

departments 30
Overview of methods:
• reciprocal is the most precise
• direct and step-down are simple to compute and understand
• direct method is widely used.
Ofélia Pinto
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departments – web links 31
• YouTube lecture ‘Support Departments Cost Allocation Using

Direct Method’ can be found at:
https://www.youtube.com/watch?v=oUk3f9SWFKU
• YouTube lecture ‘Support Departments Cost Allocation Step
Down Method’ can be found at:
https://www.youtube.com/watch?v=oUk3f9SWFKU
• YouTube lecture ‘Support Cost Departments Allocation
Reciprocal Method’ can be found at:
https://www.youtube.com/watch?v=NB0zsaPC4MI
Ofélia Pinto
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32
Lecture Illustration: Red

Ball Printers
Ofélia Pinto
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Lecture Illustration Part 1 Universidade do Minho

33
Red Ball Printers has 3 operating departments

• Catalogue, Magazine and Book departments;
• The Cleaning Department provides services to these

departments;
• The allocation base for Cleaning is cleaning hours to

represent usage of Cleaning Services
• Budgeted cleaning hours for November is 5.000 based on the

following budgeted usage:
Catalogue Department 1.200 hrs

Magazine Department 1.600 hrs
Book Department 2.200 hrs
Total 5.000 hrs
Ofélia Pinto
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34
Budgeted costs of Cleaning for November are $200.000

These costs comprise the following:
– Fixed: $130.000 (fixed within relevant range of 1.000 -
10.000 cleaning hours)
– Variable: $14 per cleaning hour ($70.000)
Ofélia Pinto
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Determine a single budgeted application Universidade do Minho
rate for November

35
November’s single budgeted application rate is

$200.000/5.000 hrs = $40 /hour
• Equivalent to -
• $14 of variable costs per hour (70.000/5.000)
and;
• $26 of fixed costs per hour ($130.000/5.000)
Ofélia Pinto
35
Allocate Cleaning costs to Departments using Universidade do Minho
single rate
36
• Actual usage of Cleaning Department for

November is
Magazine Department 1.800 hrs (not 1.600)
Book Department 1.900 hrs (not 2.200)
Total 4.900 hrs
Ofélia Pinto
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single rate
37
Cost allocation to Departments

Catalogue: $40 x 1.200 hours = $48.000
Magazine: $40 x 1.800 hours = $72.000
Book: $40 x 1.900 hours = $76.000
Total Allocation: $196.000
Total allocation is $196.000 not $200.000

Is this an appropriate allocation?
Ofélia Pinto
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single rate
38
Did the 3 operating departments “cause” $196.000 of

Cleaning services?
They required Variable Costs of 4.900 hrs x $14 = $68.600
○ Not $70.000 as only 4.900 hrs (not 5.000) were used
BUT still required Fixed Costs of $130.000 – no change as
they are FIXED with output (cleaning hours) in the short-term
Total “caused” = $68.600 + $130.000 = $198.600
– Therefore Cleaning costs have been underallocated by
$2.600
Ofélia Pinto
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single rate 39
What caused Cleaning costs to be incorrectly allocated?

– The incorrect allocation of fixed costs
Remember the single allocation rate of $40/hour

Fixed costs were treated as variable with cleaning hours –
even though they are FIXED costs
As a result, when cleaning hours amounted to only 4.900 the

fixed cost allocation ended up being only
– $26 x 4.900 hours = $127.400 instead of $130.000
– i.e. $2.600 underallocated
Ofélia Pinto
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dual rates
40
The problem with fixed costs can be solved if

separate rates for Variable and Fixed support
department costs are used
Use dual rates for Red Ball Printers Cleaning
department
• Variable cost application rate will not change
– $14 per cleaning hour used
• Fixed cost allocation?

– Need to find a suitable allocation base – not cleaning
hours used
Ofélia Pinto
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dual rates
41
Fixed Costs are incurred to provide support departments with

the ability to satisfy the demands of the operating
departments in the long-term
• In any given month operating departments may not
use all a support department’s capacity available
– However over time it is assumed they will
Therefore long-term average usage of support departments

is likely to represent the “cause” of Fixed Costs
– “Average actual capacity” or “Practical capacity”
Ofélia Pinto
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dual rates
42
Red Ball Printers’ 3 operating departments have the following practical

capacity
Magazine Department 1.925 hrs
Book Department 2.200 hrs
Total 5.500 hrs
Need to determine allocation ratios (allocation bases) for each operating

department based on practical capacity proportions
Catalogue Department 1.375/5.500 = 25%
Magazine Department 1.925/5.500 = 35%
Book Department 2.200/5.500 = 40%
Ofélia Pinto
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dual rates
43
Budgeted Cleaning Fixed Costs =$130,000

Cleaning Fixed Cost allocation to operating departments
Department Ratios Fixed Cost Allocation

$32.500
Catalogue 25%
(25% x $130.000)
$45.500
Magazine 35%
(35% x $130.000)
$52.000
Book 40%
(40% x $130.000)
Ofélia Pinto
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dual rates
44
Total of Fixed and Variable Cost allocations
Fixed Cost Variable Cost

Department Total Allocation
Allocation allocation
$32.500 $49.300
$16.800
Catalogue
($14 x 1.200)
$45.500 $70.700
$25.200
Magazine
($14 x 1.800)
$52.000 $78.600
$26.600
Book
($14 x 1.900)
Total $130.000 $68.600 $198.600
Ofélia Pinto
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dual rates
45
Things to note:
• Fixed costs have not been “unitized”, as allocation base
ratios were used to allocated fixed costs
• Ratios stay constant until long-term capacity changes
• Ultimately dual rates provide more accurate support
department cost allocation, as they use the “cause and
effect” rule
Ofélia Pinto
45
Comparison of single and dual rates for Universidade do Minho
support department costs

46
Dual
Department Single rate Allocation
rate Allocation
$48.000 $49.300
Catalogue
$72.000 $70.700
Magazine
$76.000 $78.600
Book
Total $196.000 $198.600
Ofélia Pinto
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Budgeted or actual usage of support Universidade do Minho

departments? 47
Should support department costs be allocated based on

budgeted or actual usage of allocation base?
– It depends on the purpose of the allocation
Purpose is budgeting or planning?
– Use budgeted usage, so that allocations can be done at
the beginning of the period
Purpose: evaluation of department manager performance?

– Actual usage should be used, as this most accurately
represents the outcome of managers decisions regarding
support usage
Ofélia Pinto
47
Budgeted versus actual cost allocation Universidade do Minho

48
The Issue
Should actual or budgeted support department costs be
allocated to operating departments?
The answer?
Budgeted costs should be allocated for two main reasons
1. It allows allocation of support department costs during
the period – more timely information
2. It provides more equitable information for the
evaluation of operating and support department
managers
Ofélia Pinto
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Allocation of budgeted costs – provides Universidade do Minho
more timely information

49
If budgeted costs are allocated -

Application rates can be determined at the start of the period
• Jobs/products can be costed during the period
• Managers can budget for the cost of using support
department resources
– i.e. They will know that every hour of cleaning time will
incur a variable cost of $14
Conversely actual costs are not known until the end of the
period, therefore actual cost allocations will not provide
timely information
Ofélia Pinto
49

50
Recall Red Ball Printers

Dual Rate variable cost allocations based on budgeted
variable costs were;
Catalogue Department $16.800

Magazine Department $25.200
Book Department $26.600
Total $68.600
Ofélia Pinto
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Budgeted vs actual cost allocations- lecture Universidade do Minho
illustration using variable costs

51
Now, assume that at the end of November actual Cleaning

variable costs amounted to $78,400
The Cleaning department did not operate as efficiently as

expected in November
In particular, three employees from the Cleaning department

have been disciplined for wasting time on jobs undertaken for
the Catalogue and Book Departments.
• This inefficiency resulted in additional costs of around
$7.000
Ofélia Pinto
51
Budgeted vs actual cost allocations- Part 2a) What Universidade do Minho
should actual variable costs have equalled?

52
What should actual variable costs have equalled?

Actual cleaning hours used x application rate
• 4,900 hours x $14 = $68,600 (not $78,400)
Most of the difference appears to be due to the
inefficiencies in the Cleaning Department
What happens if actual costs are allocated?
Ofélia Pinto
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Budgeted vs actual cost allocations- Part 2b) Universidade do Minho
Allocation of actual Cleaning variable costs

53
Actual Cleaning Department variable costs = $78.400

Actual Allocation rate = $78.400/4,900 = $16/hour
Department Actual Usage Actual Variable Cost

(hours) Allocation
Catalogue 1.200 $19.200
($16 x 1.200)
Magazine 1.800 $28.800
($16 x 1.800)
Book 1.900 $30.400
($16 x 1.900)
Total 4.900 $78.400
Ofélia Pinto
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Part 2c) Comparison of the allocation of actual Universidade do Minho
and budgeted costs

54
Actual Variable Budgeted Variable

Cost Allocation Cost Allocation
Department Difference
Catalogue $19.200 $16.800 $2.400

Magazine $28.800 $25.200 $3.600
Book $30.400 $26.600 $3.800
Each department has higher actual cost allocations

o However the difference in allocations is caused by the
actions of the support department, not the operating
department
• The difference shouldn’t be allocated
Ofélia Pinto
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02/10/2022
What if there is more than one support Universidade do Minho
department?
55
If multiple support departments exist, they are likely to interact

• i.e. Supply services to each other as well as to operating
departments
Allocation Methods used:
• Direct method;
• Sequential or step-down method; and
• Reciprocal method
The most accurate cost allocation takes into account these
“reciprocal” sharing of services
Ofélia Pinto
55

56
Red Ball Printers actually has two Support Departments

• Cleaning and Maintenance
Budgeted Cleaning costs (as previously)

– Fixed = $130.000
– Variable = $70.000
Budgeted Maintenance costs

– Fixed = $100.000
– Variable = $80.000
Ofélia Pinto
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Multiple Support Departments – An Universidade do Minho
Illustration
57
Budgeted usage of support departments is as follows:
Cleaning Mainten. Catalogue Magazine Book Total

Cleaning
Hours * -- 1.250 1.200 1.600 2.200 6.250
Mainten.
Hours # 80 -- 150 130 140 500
* Allocation base for Cleaning is Cleaning Hours

# Allocation base for Maintenance is Maintenance Hours
Ofélia Pinto
57
Multiple Support Departments - Universidade do Minho
Illustration
58
Note that Cleaning provides services to Maintenance

• Therefore some Cleaning costs should be allocated to Maintenance
• Maintenance costs of $100.000 are understated (variable costs $70,000)
Note that Maintenance provides services to Cleaning

• Therefore some Maintenance costs should be allocated to Cleaning
• Cleaning costs of $130.000 are understated (variable costs $80,000)
Ofélia Pinto
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1. Direct Method Allocations- Variable Costs Universidade do Minho

only (Figures rounded) 59
Cleaning Mainten. Catalogue Magazine Book
Initial Costs
$70,000 $80,000 $300,000 $350,000 $480,000
Cleaning 24% 32% 44%
Ratios (1200/5000) (1600/5000) (2200/5000)
Cleaning No
Alloc’n -$70,000 Allocation $16,800 $22,400 $30,800
Mainten. 35.7% 30.95% 33.34%
Ratios (150/420) (130/420) (140/420)
Mainten. No
Alloc’n Allocation -$80,000 $28,560 $24,760 $26,680
Totals $0 $0 $345,360 $397,160 $537,480
Ofélia Pinto
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2. Sequential (step down) method Universidade do Minho

60
Only partially recognises interactions among support depts

– Support department cost allocation is only one way
– E.g. If Maintenance is allocated first some of its costs will be
allocated to Cleaning
Cleaning will be allocated second, but will not allocate some of its
costs back to Maintenance even though Cleaning provides services
to Maintenance
– This means the first department is allocated accurately, the
second less accurately, and so on
Allocation order (ranking) affects accuracy

of cost allocations
Ofélia Pinto
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Sequential method and allocation order Universidade do Minho
(ranking)
61
How can rankings be determined?

Several options
• Textbook ranks based on “percentage of total services
provided to other service departments”
– Cleaning provides 20% (1.250/6.250) of services to
maintenance
– Maintenance provides 16% (80/500) of its services to
Cleaning
• Therefore allocate Cleaning first – highest percentage
» However this approach may not represent the best
allocation order
Ofélia Pinto
61
(ranking)
62
What if;
• Cleaning costs were only $10.000 and
• Maintenance costs were $800.000
If allocating Cleaning first;

• $2.000 (20% of $10.000) of Cleaning costs will be
allocated to Maintenance – which is an accurate
allocation
Ofélia Pinto
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02/10/2022
(ranking)
63
BUT
• $128.000 (16% of $800.000) of Maintenance costs will not
be allocated to Cleaning (as allocation is only one-way)
» even though Cleaning caused these costs to
be incurred through its use of Maintenance
services
» Instead, this $128.000 will be allocated
directly to the operating departments –
inaccurate allocation
Ofélia Pinto
63

(ranking) 64
What if allocate Maintenance first;

• Cleaning costs are only $10.000
• Maintenance costs are $800.000
• $128.000 (16% of $800.000) of Maintenance costs will be
allocated to Cleaning – accurate allocation
Ofélia Pinto
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(ranking) 65
BUT
• $2.000 (20% of $10.000) of Cleaning costs will not be
allocated to Maintenance (as allocation is only one-way)
– even though Cleaning caused these costs to be incurred
through its use of Maintenance services
• Allocations are still not completely accurate BUT

– At least only $2.000 is incorrectly allocated, instead of
$128.000
Ofélia Pinto
65
Preferred allocation order (ranking) in Universidade do Minho

this course 66
Allocation ranking is determined by the dollar value of

services provided to OTHER support departments
Red Ball Printers
• Cleaning provides services valued at 20% of $70.000 to
Maintenance = $14.000
• Maintenance provides services valued at 16% of $80.000
to Cleaning = $12.800
Allocate first the department providing the LARGEST

dollar value of services to OTHER support
departments
Ofélia Pinto
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Sequential (step down) method - Universidade do Minho

illustration 67
Allocation base ratios

‘ Cleaning Mainten. Catalogue Magazine Book
Cleaning
- 1.250 1.200 1.600 2.200
Hours
Ratios ,20 ,192 ,256 ,352
- 1.250/6.250 1.200/6.250 1.600/6.250 2.200/6.25
0
Mainten.
Hours - 150 130 140
Ratios ,357 ,31 ,333
150/420 130/420 140/420
Ofélia Pinto
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Sequential Method – Allocations Universidade do Minho

(rounded) 68

Initial Costs
$70.000 $80.000 $300.000 $350.000 $480.000
Cleaning
,20 ,192 ,256 ,352
Ratios
Alloc’n -$70.000 $14.000 $13.440 $17.920 $24.640
Mainten.
No Allocation ,357 ,310 ,333
Ratios
Alloc’n -$94.000 $33.572 $29.095 $31.333
Totals $0 $0 $347.012 $397.015 $535.973
Ofélia Pinto
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3. Reciprocal Method Universidade do Minho

69
• Recognises ALL interactions among support departments

• Uses simultaneous equations to determine the cost
allocations required to reflect these interactions
• Start with equations that represent TOTAL support
department costs – as if support department allocations had
occurred
Maintenance cost (M) = $80.000 + 20% of C
Cleaning cost (C) = $70.000 + 16% of M
Ofélia Pinto
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Reciprocal Method Universidade do Minho

70
Solve for M and C using simultaneous equations
Maintenance costs
M = $80.000 + ,20($70.000+,16M)
M = $80.000 + $14.000 + ,032M
,968M = $94.000  M = $97.107 (rounded)
Cleaning Costs
C= $70.000 + ,16($97.107)
C = $70.000 + $15.537= $85.537 (rounded)

Ofélia Pinto
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Reciprocal Method
71
Now allocate these “new” costs using allocation ratios
Initial Costs
$70.000 $80.000 $300.000 $350.000 $480.000
Cleaning
,2 ,192 ,256 ,352
Ratios
Alloc’n -$85.537 $17.107 $16.423 $21.898 $30.109
Mainten.
,16 ,30 ,26 ,28
Ratios
Alloc’n $15.537 -$97.107 $29.132 $25.248 $27.190
Totals $0 $0 $345.555 $397.146 $537.299
Ofélia Pinto
71
Comparison of Methods
72
Final Allocations to Operating Departments
Direct Sequential
Reciprocal Method
Method Method
Catalogue $345.360 $347.012 $345.555
Magazine $397.160 $397.015 $397.146
Book $537.480 $535.973 $537.299
Total $1.280.000 $1.280.000 $1.280.000
Ofélia Pinto
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Comparison of Methods
73
Note: Allocations are quite similar

Why?
• Because there are very few support departments, and
• the interactions between the support departments are
relatively small (16% and 20%)
Choice of method should be based on cost-benefit

• Benefit to allocation accuracy vs. costs of method
Ofélia Pinto
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37

MA Topic 2 03102022

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02/10/2022

Topic 2: Allocation of support-

LEARNING OBJECTIVES: Chapter 13 Universidade do Minho

• Distinguish the single-rate method from the dual-rate

Allocating costs of a support department to Universidade do Minho

• Operating (production) department – directly adds

Why allocate support department costs? Universidade do Minho

1. To provide information to support decision-making in

2. To provide information to help department managers

3. To provide information to motivate department

4. To provide information for evaluating responsibility

Allocation of support department costs Universidade do Minho

• Support department costs need to be allocated to the

• And ultimately, products or services

• Why allocate these costs?

What are the issues? Universidade do Minho

Five (5) issues in allocating support department costs

Allocating costs of a support department to Universidade do Minho

Single-rate and dual-rate methods

Allocating costs of a support department to Universidade do Minho

When allocating costs to departments using Universidade do Minho

• Fixed Costs are incurred to provide support departments

• Therefore long-term average usage of support

When allocating costs to departments using

• Using Dual Rates:

Fixed costs will not be “unitized” when allocation base

Allocating costs of a support department to Universidade do Minho

Under either method, allocation of support

Allocating costs of a support department to Universidade do Minho

Allocation based on the demand for (or usage of)

Allocating costs of a support department to Universidade do Minho

If you were to use the same option throughout:

Allocating costs of a support department to Universidade do Minho

Allocation based on the supply of capacity

Allocating costs of a support department to Universidade do Minho

Budgeted usage, actual usage and capacity-level

Allocating costs of a support department to Universidade do Minho

Budgeted versus actual rates

Example – Central Computer department Universidade do Minho

Practical Capacity: 18.750 hours

Allocating costs of a support department to Universidade do Minho

Budgeted usage: 8000h / (8000+4000) = 0,6667 = 2/3 => 2/3*3000000 =

Allocating costs of multiple support Universidade do Minho

Three methods of allocating the costs of reciprocal

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

•Data used in cost allocation illustrations:

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support departments26

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

Reciprocal method: Equations

I = 1.452.150 + 20% (6.300.000 + 10% I)

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

Allocating costs of multiple support Universidade do Minho

departments – web links 31

• YouTube lecture ‘Support Departments Cost Allocation Using

Lecture Illustration: Red