1. Managerial Accounting: An Introduction To Concepts, Methods, And Uses
Chapter 13
Allocating Costs
to Responsibility Centers
Maher, Stickney and Weil

2. Learning Objectives (Slide 1 of 2)
Explain what comprises common (or indirect) costs.
Explain why companies allocate common costs to departments and products.
Describe how to allocate service department costs to production departments.
Explain why activity-based costing is used to allocate service department costs.

3. Learning Objectives (Slide 2 of 2)
Identify methods of allocating marketing and administrative costs to departments.
Explain how to allocate joint-process costs.
Explain why joint-process costs are allocated.

4. Define Common Costs

5. Define Service Departments

6. What is the goal of cost allocation?
Cost allocation is a three step process: List the three steps.

7. Draw the Overhead Distribution and Allocation

8. Allocating Service Department Costs
Allocating service department costs to production departments can be accomplished by several methods
For example, the step method allocates costs in steps as follows:
Begin with the service dept that receives the smallest amount of services from other service depts.

9. Allocating Service Department Costs
Allocate its costs to other service and production departments
Distribute the total costs of the service dept receiving the next smallest amount of service from other depts. and so on until all service dept costs have been allocated to production depts.

10. Activity-Based Costing
A more accurate approach to allocate service dept costs might use ABC principles
This approach involves:
Measuring each service dept’s resource spending by unit, batch, product, customer, and facility

11. Activity-Based Costing
Identify and measure activities demanded by other depts. that require support service
Identify appropriate cost drivers and calculate cost-driver rates
Allocate service dept costs based on other departments’ usage of cost-driver bases

12. Marketing and Administrative Expenses
Management will often allocate marketing and administrative costs to departments
Bases for allocating such costs might include the following:
Cost Basis
Storage Costs Floor Space
Handling Costs Tonnage Handled
Delivery Expenses Number of Miles Operated

13. Define a Joint-Process Cost

14. Joint-Process Costs
Joint-process costs must be allocated to joint products to provide managers with product cost information for decision making & performance evaluation

15. What are the two major methods of allocating joint costs?

16. Explain Net Realizable Method

17. Explain the Physical Quantities Method

18. Why Allocate Joint-Process Costs?

19. Dr. Michael Blue, CFE, CPA, CMA blue@bloomu.edu
If you have any comments or suggestions concerning this PowerPoint Presentation for Managerial Accounting, An Introduction To Concepts, Methods, And Uses, please contact:
Dr. Michael Blue, CFE, CPA, CMA
Bloomsburg University of Pennsylvania