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MGT1_20163
GROUP 6:
- INANDA MEITASARI (014201600071)
- LUISA (014201600102)
- MIRANDA NABILA P. (014201600046)
- VINCENT IGNATIUS (014201600027)
- WISNUDITO AJI K. (014201600031)
The departments using these services are
the user departments. User departments
could be other service departments or
production or marketing departments
that produce or market the products.
A service department does
not directly produce the
product or service but
rather provide service to
the departments that do
produce the product or
provide the service.
Reciprocal Method
Step Method
Direct Method The reciprocal method
Charges costs of service Once an allocation is made recognizes all services
departments to user from a service department no provided by any service
departments without making further allocations are made department, including services
allocations between or among back to that service provided to other service
service departments. In other department. departments.
words, costs are charged only
to the final cost centers.
Basic Data for Service Department Cost Association:
Example of Carlyle Coal Company
Pacific Mine
(P2)
Service Dept.:
(S1) $ 800,000 0.0% 50.0%a 10.0%b 40.0%c 100.0%
(S2) 5,000,000 0.0% 0.0% 62.5%d 37.5%e 100.0%
f 50.0% × $800,000
g 10.0% × $800,000
h 40.0% × $800,000
I 62.5% × $5,400,000
j 37.5% × $5,400,000
k $5,800,000 of service department costs were ultimately allocated
to production departments.
Total Service Direct cost of the Costs allocated to the
= +
Department costs Service Department Service Department
S1 = $ 800,000 + 0.20 S2
S2 = $5,000,000 + 0.50 S1
Substituting the first equation into the second yields:
S2 = $5,000,000 + 0.50($800,000 + 0.20 S2)
S2 = $5,000,000 + $400,000 + 0.10 S2
0.9 S2 = $5,400,000 S2 = $6,000,000
Substituting the value of S2 back into the first equation gives:
S1 = $800,000 + 0.20($6,000,000)
S1 = $2,000,000
Percent Applicable to
Total
Cost (S1) (S2) (P1) (P2) Total
Service Dept.:
(S1) $2,000,000 0.0% 50.0%a 10.0%b 40.0%c 100.0%
(S2) 6,000,000 20.0%d 0.0% 50.0%e 30.0%f 100.0%
a Total costs of S1
b Costs allocated from S1 (50% × $2,000,000)
c 10.0% × $2,000,000
d 40.0% × $2,000,000
e Costs allocated from S2 (20% × $6,000,000)
f Total costs of S2
g 50% × $6,000,000
h 30% × $6,000,000
i $5,800,000 of service department costs were ultimately
Net Physical
Realizable Quantities
Value (NRV) Method
Method
Allocation of
Joint Costs
is the cost of a
manufacturing
process with two or
more outputs.
Net Realizable Value
(NRV) Method is the
sales value of each
product at the split-off
point.
Physical Quantities
Method is based on
measurement of the
volume, weight, or other
physical measure of the
joint products at the
split-off point.
Carlyle Coal Company
Joint Allocation – NRV Method
(no additional processing costs)
Carlyle Coal Company
For the Month of March
Split-off
Further Processing of Coal: point
Hi-grade coal: 15,000 units
Cost Flows –
Sales value: $300,000
Carlyle Coal Company When no sales value exists
for outputs at the split-off
point, the estimated NRV
Mining costs
Should be determined.
$270,000
• Method 2:
The proceeds from sale of the by-product
are treated as other revenue.
Method 1: Carlyle Coal Company
For the Month of March
Hi-Grade Lo-Grade Dust Total
Sales value $300,000 $450,000 $15,000 $765,000
Less: Additional processing costs -0- -0- -0- -0-
Net realizable value at split-off point $300,000 $450,000 $15,000 $765,000
Deduct: Sales value of by-producta -0- -0- 15,000 15,000
Allocated remaining joint costsa 102,000b 153,000c -0- 255,000
Gross margin $198,000 $297,000 -0- $495,000
Gross margin as a percent of sales 66% 66% 0% 65%
a Joint costs adjusted for sales value of by-product (dust)
b ($300,000 ÷ $750,000) or 40% × ($270,000 – $15,000)
c ($450,000 ÷ $750,000) or 60% × ($270,000 – $15,000)
Method 2: Carlyle Coal Company
For the Month of March