A company has two operating departments: Retail Shops and Online Shop. Each of the operating departments uses the services of the company’s two service departments: Admin and HR. Additionally, the Admin and HR departments use the services of each other. Data concerning the past year are as follows: Retail Online Admin HR Total Shops Shop Budgeted overhead costs before any interdepartment cost allocations Support work furnished: For Admin department $250,000 $190,000 | $380,000 $470,000 | $1,290,000 Number of Admin tasks 90 290 120 For HR department No. of employees 21 62 17
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
- Compute the total
overhead costs of the operating departments (Retail Shops and Online Shop) after the service department costs of Admin and HR have been allocated using- the direct method
- the step-down (using the sequence of cost of service provided)
- the reciprocal method
(b)Which method would you recommend that the company use to allocate service department costs? Why? You should consider different perspectives.
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