There are three general guidelines to use when allocating service department (support) costs. One of these guidelines deals with the cost behavior of support costs. Why do many companies allocate fixed support costs separately from variable support costs?
Answer to relevant QuestionsConfusion can arise when cost allocations to one consuming department depend on the activity of another consuming department. “A commonly misused basis for allocation of central support costs is actual dollar sales.” ...Consider one of L.A. Darling’s manufacturing facilities. Suppose this facility assembles parts for displays to be sold to Wal-Mart, Kmart, and Walgreens. There are three departments assembly, power, and maintenance. The ...Briefly describe the two popular methods for allocating service department costs.Roberto’s Markets, Inc., has three grocery stores in the metropolitan Atlanta area. The company allocates central costs using sales as the cost-allocation base. The following are budgeted and actual sales during ...Based on a study of operations at TCS, it was determined that “number of orders” was a better cost-allocation base for the order processing and customer service activities. The cost of the resources used by these two ...
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