Support department costs are difficult to apply to products because they are not directly related to the production of any specific product. Instead, support department costs benefit all products in general. For example, the costs of the accounting department benefit all products by providing financial information to management.

There are a number of reasons why it is difficult to allocate support department costs to products:

• Support department costs are often indirect. This means that they cannot be easily traced to specific products. For example, the cost of electricity may be used to power both the production line and the accounting department.
• Support department costs may be shared by multiple products. For example, the cost of the maintenance department may be shared by all products that use the company’s machinery.
• Support department costs may be difficult to measure. For example, it may be difficult to measure the cost of the human resources department’s time spent on recruiting and hiring employees.

As a result of these challenges, there is no single “correct” way to allocate support department costs to products. Instead, companies must use their judgment to choose an allocation method that is fair and accurate for their specific business.

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

Support department cost allocation matters to service businesses because it helps them to understand the true cost of their services. This information can be used to set prices, make decisions about resource allocation, and evaluate the performance of different departments.

For example, a college may need to allocate the costs of its administrative departments to its different academic programs. This information can then be used to set tuition fees for each program. Additionally, the college may use this information to identify areas where it can save money or to reallocate resources to more important areas.

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

Under the sequential method, support department costs are allocated to operating departments in a specific order. The order in which the departments are allocated is determined by their level of interdependence. The department that provides the most services to other departments is allocated first, followed by the department that provides the most services to the next-most-dependent department, and so on.

The following is an example of how management might determine the order in which support department costs are allocated under the sequential method:

1. Maintenance department: The maintenance department provides services to all other departments, so it is allocated first.
2. Human resources department: The human resources department provides services to all other departments, except for the maintenance department, so it is allocated second.
3. Accounting department: The accounting department provides services to all other departments, except for the maintenance and human resources departments, so it is allocated third.
4. Marketing department: The marketing department provides services to all other departments, except for the maintenance, human resources, and accounting departments, so it is allocated fourth.

Once the order of allocation has been determined, support department costs are allocated to operating departments using a variety of different methods, such as the direct method, the step method, or the reciprocal method.

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

Support department and joint cost allocation can affect production employee performance evaluations in a number of ways. For example, if production employees are evaluated based on the profitability of their department, then support department and joint cost allocation can have a significant impact on their performance evaluations.

If support department costs are allocated to production departments using an unfair or inaccurate method, then this can lead to production employees being penalized for factors that are beyond their control. For example, if a production department is allocated a large share of the costs of the marketing department, then this can reduce the profitability of the production department, even if the production employees are performing well.

It is important to note that support department and joint cost allocation are only one factor that should be considered when evaluating the performance of production employees. Other factors, such as the quality of the products produced and the efficiency of the production process, should also be considered.

Conclusion

Support department cost allocation is a complex topic, but it is important for service businesses to understand how it works. By carefully considering the different allocation methods available, service businesses can choose an allocation method that is fair and accurate for their specific business.