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Lecture Cost management: Measuring, monitoring, and motivating performance (3rd edition) – Chapter 8

Chapter 8 - Measuring and assigning support department costs. In this chapter students will be able to: Define support departments, and explain why their costs are allocated to other departments; explain the process that is used to allocate support department costs; explain how the direct method is used to allocate support costs to operating departments; calculate cost allocations using the direct method; . | Lecture Cost management Measuring monitoring and motivating performance 3rd edition Chapter 8 COST MANAGEMENT Measuring Monitoring and Motivating Performance Third Canadian Edition ELDENBURG WOLCOTT CHEN COOK Chapter 8 Measuring and Assigning Support Department Costs Learning Objectives LO1 Define support departments and explain why their costs are allocated to other departments LO2 Explain the process that is used to allocate support department costs LO3 Explain how the direct method is used to allocate support costs to operating departments calculate cost allocations using the direct method LO4 Explain how the step-down method is used to allocate support costs to operating departments calculate cost allocations using the step-down method LO5 Explain how the reciprocal method is used to allocate support costs to operating departments calculate cost allocations using the reciprocal method LO6 Explain the difference between single- and dual-rate allocations LO7 Identify how support cost allocations and information quality impact management decision-making LO1 Define support departments and explain why their costs are allocated to other departments Support versus Operating Departments The operating departments of an organization produce products or services that generate revenue. The support department costs are common costs that are shared between two or more other departments activities products or other cost objects The support departments of an organization produce products or provide services to the operating and other support departments. Objectives for Support Department Cost Allocation External reporting Cost reports for government contracts Income tax returns Reports prepared for reimbursement purposes Motivation Provide incentives for efficient production of support services Provide incentives for appropriate use of support services Monitor use and production of support services Strategic and operating decisions New product market introductions Insource .