a department that provides service to support other operating or service departments

Single rate allocate fixed and variable department cost using a single cost pool and allocation base. In a dual rate costing system, fixed costs are allocated with one allocation base and variable costs are allocated with another.

1) direct method

2) step-down method

3) reciprocal method

generally most accurate - reciprocal

generally least accurate - direct

1) direct method - the cost of operating the service department

2) step-down method - the cost of operating the service department and whatever costs are allocated to the service department from other  service departments.

3) the reciprocal method - the cost of operating the service department and all the costs  allocated from other service departments.

It also allows us to evaluate department managers on their cost control so that we can motivate them to be careful with their costs

1) weighted average

2) FIFO

Weighted average
1) Beginning inventory direct material costs + added direct material costs
2) Beginning inventory conversion costs + added conversion costs

FIFO
1)added direct material costs
2) added conversion costs

1) physical units transferred out of the department

2) physical units in ending inventory

benefits received is the most likely criteria from the pespective that partially complete units did not yet receive the full benefit of processing

these are the costs that physical units bring with them when they come from another department. We treat transferred in costs like direct material costs in which 100% of the material is added at the begginiing of the process.

the point in the process where the joint products are recognizable.

products resulting from a single process that all have  high value.

1. Oil refining: gas, jet fuel, coke

2. Processing dairy products – cream skim

3. Process lumber – boards, chips, saw dust

4. Grinding bricks – dust/ground brick

1) Physical measure method

2) Sales value at the split-off

3) Net realizable value at the split-off

4) constant gross-margin net realizable value

Regardless of the method, the cost pool is always  the joint manufacturing cost.

Regardless of the method, the costobjects  are the products resulting from the joint process.

1) Physical measure method - phyical measure of the joint products
2) Sales value at the split-off - sales value of the joint products if they were sold immediately and without further processing.
3) Net realizable value at the split-off - the net-realizable sales value of the products assuming they were all further processed.
4) constant gross-margin net realizable value - not-applicable

1) Physical measure method - cause and effect

2) Sales value at the split-off - benefit received / ability to bear

3) Net realizable value at the split-off - benefit received / ability to bear

4) constant gross-margin net realizable value - equity and fairness

Assigning cost using this method best reflects the cost of producing the product. So, it would be ok to use the allocated cost in determining product price.

No, the disadvantage to these methods is that cost are determined by their future revenue potential, so it is inappropriate to in turn use the cost to set price.

 “A quantitative expression of the proposed plan for a specified period”

 “An aid to coordinate what needs to be done

1) strategic/long-term

2) operating/master budget

Determine operational plans - how are resources distributed and used

Determine financing plans - how resources are financed

1. Budgets promote coordination and communication

2. Provide a framework to evaluate performance

3. Can be used to motivate employees.

1) “Communication is biased” – budgetary slack

2) Employees have incentive to avoid necessary expenses

3)  Predicted sale and cost can change rapidly