Planning Internal Service Department Resources to Avoid Suboptimal Behavior
CPA Journal, The › Vol. 78 Nbr. 1, January 2008
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Summary
The cost of operating an area of responsibility in a business entity includes directly traced cost from external transactions, as well as cost assigned from internal service areas. Typically, internal transactions include cost assigned from a service department to a line department. A cost driver is configured in each service department to use as the basis for assigning costs to line departments. The cost driver is the value added by the service department and should be based on a cause-and-effect relationship between the service cost and the use of the service department resource in line departments. This author suggests an alternative cost assignment procedure-one in which the cost driver rate is calculated based on the capacity level of the resource that is available in each service department, rather than the planned level of resource use.
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Planning Internal Service Department Resources to Avoid Suboptimal Behavior
The cost of operating an area of responsibility in a business entity includes directly traced cost from external transactions, as well as cost assigned from internal service areas (internal transactions). Typically, internal transactions include cost assigned from a service department to a line department (e.g., a production department).
A cost driver is configured in each service department to use as the basis for assigning costs to line departments. The cost driver is the value added by the service department and should be based on a cause-and-effect relationship between the service cost and die use of the service department resource in line departments. Typically, the procedure is to c...See the full content of this document
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