MALİYET VE YÖNETİM MUHASEBESİ

Cost allocation refers to the process of assigning costs in a cost pool to the appropriate cost objects with the help of representatives.

The four objectives for allocating indirect costs to these cost objects are as follows (Bhimani, Horngren, Datar and Rajan, 2015: 124): 1. To provide information for economic decisions, 2. To motivate managers and employees, 3. To justify costs or calculate reimbursement, 4. To measure income and assets for reporting to external parties.

Opearting departments in a bank include:

Auto Loans: Loan processors' salaries, Forms and supplies

Commercial Lending: Lending officers' salaries, Depreciation on office equipment, Bankruptcy prediction software

Personal Banking: Supplies and postage for statements

A furniture maker may include the following support departments:

Materials Storeroom: Clerk's salary, Depreciation on forklift

Cafeteria: Food, Cooks' salaries, Depreciation on stoves

Maintenance: Janitors' salaries, Cleaning supplies, Machine oil and lubricants,

General Factory: Depreciation on building, Security, Utilities

There are two important issues in calculating the charging rate:

1. The choice of a single or a dual charging rate and

2. The use of budgeted versus actual support department costs.

Practical capacity is the amount that an entity can generate if the normal operating disruptions are considered.

The process involves the following steps (Eldenburgh and Wolcott, 2005: 301):

1. Explain the purpose of the allocation.

2. Identify support and operating department cost pools.

3. Assign costs to cost pools.

4. For each support department cost pool, choose an allocation base.

5. Choose and apply a method for allocating support department costs to operating departments.

6. If relevant, allocate support costs from the operating departments to units of goods or services.

The direct allocation method (often called the direct method) is the most widely used method of allocating support department costs. This method allocates each support department’s costs directly to the operating departments. In this method costs accumulated in service departments are allocated to the manufacturing departments depending on the services that each of the manufacturing department requires from each of the service department. In this method, firstly, we have to identify the service carried out by each of the service department.

Reciprocal method is also known as algebraic method.

In step-down method, the cost of service departments will be allocated to other service and operating departments depending on whether they provide services or not.