ACC513 – Allocating Costs to Responsibility Centers

Introduction

In this lesson students explore the nature of common or indirect costs. They also become aware of why companies allocate common costs to departments and products. Examples of how service department costs are allocated to production departments are presented. The allocation of marketing and administrative expenses as well as the allocation of joint-process costs is discussed.

Lesson Learning Objectives

By the conclusion of this Lesson you should be able to:

• Explain the nature of indirect costs.
• Allocate service department costs to production departments.
• Explain why activity-based costing is used to allocate service department costs.
• Demonstrate methods of allocating marketing and administrative costs to departments.
• Allocate joint-process costs.

Reading

Study Chapter 13 of the text.

Assignments

The following assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Whenever possible, submit your responses to all assignment questions in one WORD document.

Short Answer Questions

1. Distinguish between a production department and a service department.
2. Distinguish between a direct cost and an indirect cost.
3. Give the steps in the cost allocation process.
4. What is the nature of a joint-production process?
5. What is the objective of joint-cost allocation?
6. Discuss reasons for allocating costs to departments.
7. Name some of the costs and benefits of cost allocation.

Professional Development Questions

1. In chapter 13 of the text (page 471), answer the case study question #23. (Beatrice Inc.; using multiple cost drivers to allocate costs.)
2. In chapter 13 of the text (page 473), answer the case study question #28. (Demski Company; allocating overhead)
3. In chapter 13 of the text (page 477), answer case study questions #35a through d. (Wafers Inc.; joint cost allocation and product profitability)

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