PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA 5 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Service Department Allocations Appendix 4B
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PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
Step-Down Method There are three key points to understand regarding the
step-down method: In both the direct and step-down methods, any
amount of the allocation base attributable to the service department whose cost is being allocated
is always ignored. Any amount of the allocation base that is attributable to a service department whose cost has already been allocated is ignored. Each service department assigns its own costs to operating departments plus the costs that have been allocated to it from other service departments.
4B-18
Service Department Allocation Base
Cafeteria Number of employeesCustodial Square feet occupied
Recall the data used in the direct method example.Recall the data used in the direct method example.
Step-Down Method – An Example
4B-19
Allocate Cafeteria costs first sinceit provides more service than Custodial.
Allocate Cafeteria costs first sinceit provides more service than Custodial.
Step-Down Method – An Example
4B-20
$360,000 ×10
10 + 20 + 30= $60,000
Allocation base: Number of employees Allocation base: Number of employees
Step-Down Method – An Example
4B-21
$360,000 ×20
10 + 20 + 30= $120,000
Allocation base: Number of employees Allocation base: Number of employees
Step-Down Method – An Example
4B-22
$360,000 ×30
10 + 20 + 30= $180,000
Allocation base: Number of employees Allocation base: Number of employees
Step-Down Method – An Example
4B-23
New total = $90,000 original Custodial cost plus $60,000 allocated from the Cafeteria.