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U n i v e r s i t a s P e m b a n g u n a n N a s i o n a l Ve t e r a n J a k a r t a

w w w. u p n v j . a c . i d
 AKUNTANSI
AKUNTANSIBIAYA
BIAYA
(COST
(COSTACCOUNTING)
ACCOUNTING)

Program Studi Sarjana Akuntansi

Allocation of Support
Department Costs,Common
Costs,and Revenues

Pertemuan 3
 Distinguish the single-rate method from the dual-rate
method

Understand how the choice between allocation based on

budgeted and actual rates and between budgeted and actual
usage can affect the incentives of division managers

Allocate multiple support department costs using the direct

method, the step-down method, and the reciprocal method
Learning
Objectives Allocate common costs using the stand-alone method and
the incremental method

Explain the importance of explicit agreement between

contracting parties when the reimbursement amount is based
on costs incurred

Understand how bundling of products causes revenue

allocation issues and the methods managers use to allocate
revenues
Allocating Costs of a Supporting Department to
Operating Departments

 Supporting (Service) Department – provides the services that assist

other internal departments in the company
 Operating (Production) Department – directly adds value to a product
or service
 Most companies believe that fixed costs of support departments
should be allocated because they were incurred to provide operating
divisions with the services they require.
 Methods to Allocate Support Department Costs

 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
 Dual-Rate Method – segregates costs within each cost pool into two
segments: a variable-cost pool and a fixed-cost pool.
 Each pool uses a different cost-allocation base
 Allocation Method Trade-offs

 Single-rate method is simple to implement, but treats fixed costs in a

manner similar to variable costs
 Dual-rate method treats fixed and variable costs more realistically, but
is more complex to implement
 Allocation Bases

 Under either method, allocation of support costs can be based on one of

the three following scenarios:
1. Budgeted overhead rate and budgeted hours
2. Budgeted overhead rate and actual hours
3. Actual overhead rate and actual hours
 Choosing between actual and budgeted rates: budgeted is known at the
beginning of the period, while actual will not be known with certainty
until the end of the period
Methods of Allocating Support Costs to Production
Departments

1. Direct
2. Step-Down/Step/Bertingkat
3. Reciprocal/Simultaneous/Aljabar
Direct Method

 Allocates support costs

only to Operating
Departments
 No interaction between
Support Departments
prior to allocation
 Direct Method
Support Departments Production Departments

Information Systems

Manufacturing

Packaging

Accounting
 Step-Down
Method

 Allocates support costs to other

support departments and to
operating departments that
partially recognizes the mutual
services provided among all
support departments
 One-way interaction between
Support Departments prior to
allocation
 Step-Down Method

Support Departments Production Departments

Information Systems

Manufacturing

Packaging

Accounting
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
Reciprocal Method

Support Departments Production Departments

Information Systems

Manufacturing

Packaging

Accounting
Choosing Between
Methods

 Reciprocal is the most precise

 Direct and Step-Down are simple to
compute and understand
 Direct Method is widely used
  Common Cost – the cost of operating a
Allocating facility, activity, or like cost object that
is shared by two or more users at a
Common Costs lower cost than the individual cost of
the activity to each user
  Stand-Alone Cost-Allocation Method –
uses information pertaining to each
user of a cost object as a separate entity
Methods of to determine the cost-allocation
Allocating weights
 Individual costs are added together and
Common Costs allocation percentages are calculated
from the whole, and applied to the
common cost
  Incremental Cost-Allocation Method ranks the individual
users of a cost object in the order of users most
responsible for a common cost and then uses this ranking
to allocate the cost among the users

Methods of a) The first ranked user is the Primary User and is

allocated costs up to the costs of the primary user
Allocating as a stand-alone user (typically gets the highest
allocation of the common costs)
Common Costs b) The second ranked user is the First Incremental
User and is allocated the additional cost that arises
from two users rather than one
c) Subsequent users handled in the same manner as
the second ranked user
 Revenue Allocation and Bundled Products

 Revenue Allocation occurs when revenues are related to a particular revenue object
but cannot be traced to it in an economically feasible manner
 Revenue Object – anything for which a separate measurement of revenue is desired
 Bundled Product – a package of two or more products or services that are sold for
single price, but individual components of the bundle also may be sold as separate
items at their own “stand-alone” prices
  Stand-Alone (separate) Revenue
Methods to Allocation Method uses product-specific
information on the products in the
Allocate bundle as weights for allocating the
bundled revenues to the individual
Revenue to products. Three types of weights may be
Bundled used:
a) Selling Prices
Products b) Unit Costs
c) Physical Units
  Incremental Revenue-Allocation Method
ranks individual products in a bundle
according to criteria determined by
management and then uses this ranking to
Methods to allocate bundled revenues to individual
Allocate products (similar to earlier discussed
Incremental Cost-Allocation Method)
Revenue to a) The first-ranked product is the primary
Bundled product
b) The second-ranked product is the first
Products incremental product
c) The third-ranked product is the second
incremental product, etc.
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