Cost Allocation and Variances

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Running Heading: COST ALLOCATION AND VARIANCES

Cost Allocation and Variances- Chapter 12 & 13 Text Book Questions

Stacey S. Swafford

University of Phoenix

ACC 561

Dr. Janice Mereba

April 23, 2010

Chapter 12

Excel Application Exercise 12-59: Allocating Costs Using Direct and Step-Down Methods p. 584 Goal: Create an Excel spreadsheet to allocate costs using the direct method and the step-down method. Use the results to answer questions about your findings. Scenario: Antonio Cleaning has asked you to help them determine the best method for allocating costs from their service departments to their producing departments. Additional background information for your spreadsheet appears in Fundamental Assignment Material 12-B2. Exhibit 12-4 page 532 illustrates the types of calculations that are used for allocating costs using the direct method and the step-down method.

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When you have completed your spreadsheet, answer the following questions: 1. What are the total costs for the Residential department using the direct method?

Total cost for the residential department is $315,750.

What are the total costs for the Commercial department using the direct method?

Total cost for the commercial department according to the table is $484,250.

2. What are the total costs for the Residential department using the step-down method?

Total cost for residential department for the step-down method is $315,428.5.

3. What are the total costs for the Commercial department using the step-down method?

Total cost for commercial department for the step-down method $484,571.43.

4. Which method would you recommend that Antonio Cleaning use to allocate their service departments’ costs to their producing departments? Why?

I would recommend the direct method for Antonio Cleaning to allocate their service costs to their producing departments. The step-down method takes longer than the direct method would to calculate out...
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