Claudia Pena

September 19, 2023

BUS202

Discussion Week 5

In 150-200 words answer the following 4 questions. Please also reply to 2 other students with 50-100 words.  When you reply, please ensure you acknowledge their post, write about something that relates to their post, and ask an open-ended question.

1.
Why are support department costs difficult to apply to products?

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2.
Why does support department cost allocation matter to service businesses (such as colleges and universities)?

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3.
How does management determine the order in which support department costs are allocated under the sequential method?

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4.
How can support department and joint cost allocation affect production employee performance evaluations?

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Responses:

Damian:

“1.) Because these costs are primarily indirect and don’t directly connect to the production of a specific product, they are challenging to apply to items. Instead of supporting specific products, they serve the corporation as a whole and many divisions, making it rather difficult to attribute them to specific items precisely. This lack of a distinct, direct cost driver and the inherent subjectivity of allocation techniques as a whole might cause inaccuracies in the knowledge about product costs. Despite this, there is no perfect approach, and the cost reporting and analysis depend much on the allocation method chosen.

2.) For service businesses like colleges and universities, allocating support department costs is crucial because it aids in efficient cost management, budget creation, accurate tuition and fee setting, performance evaluation of various support functions, efficient resource allocation overall, and transparency and accountability. These institutions may make better financial decisions and make sure they are using their resources effectively to accomplish their goals while clearly communicating their financial information to stakeholders by understanding how these varied support costs are dispersed across their operations.

3.) Because management typically follows a predetermined order based on the flow of support services within the company, this is how management determines the order in which support department charges are distributed under the sequential method. Costs are first assigned to the support department, which only works with other support departments, and then transferred to the production departments. The stepwise allocation process will end once all support department costs have been distributed. Before distributing expenditures to production departments, the sequence is defined based on the dependencies and interrelationships across support departments to ensure that services delivered from one support department to another are accounted for. This kind of methodology reflects the actual use of support services within the organization.

4.) As to how can support department and joint cost allocation affect production employee performance evaluations, well, because management usually follows a predetermined order based on the flow of support services within the company. The support department receives the costs, which are then transferred to the production department. Once all costs for the support department have been distributed, the stepwise allocation process will come to an end. Spending decisions are made based on the dependencies and interrelationships across support departments before distributing them to production departments. This kind of methodology reflects the actual use of support services within an organization.”

Response (50-100 words):

Pedro:

1.)
“Support department costs are difficult to apply to products because applying them to individual or specific products is difficult. Instead, they benefit numerous departments across the entire company. For example, costs associated with administration, maintenance support several sectors at the same time. Because support departments frequently share their services, it can be hard to determine exactly how much of each support department’s costs should be allocated to each product.

2.)
The cost allocation of the support department is essential for financial planning, budgeting, and program evaluation in service based organizations like colleges and universities. These types of organizations provide numerous kinds of academic services and programs, that each require a different number of resources. Accurately allocating support costs is important for determining the true cost of delivering various programs, maintaining fair tuition rates, and gauging the viability of particular courses.

3.)
When allocating support department costs sequentially, management often chooses the order based on the causal connections and dependencies across support departments. Priority is given to costs from support departments that directly affect other support or production departments. Costs from support departments with less direct impact are then allocated. This arrangement provides a more accurate allocation of overhead costs

4.)
Performance evaluations of production employees can be significantly impacted by the support department and joint cost allocation. If the costs are inaccurately assigned, it could lead to distorted cost metrics for production departments. This then influences the decisions on resource allocation and performance reviews.”

Response (50-100 words):