Step Down Method for Allocating Support Costs
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- เผยแพร่เมื่อ 25 ส.ค. 2024
- This video shows how to use the Step-down Method (aka Sequential Allocation Method) to allocate the costs of multiple support departments when those support departments provide services to each other. With the Step-down Method, you first sequentially rank the support departments. Then you allocate the costs of the first support department to the operating divisions and other support department(s). After allocating all of the first support department's costs, you proceed to the second support department and begin its costs (which include any costs that were allocated to the second department by the first department). When allocating the costs of the second support department, however, you do not allocate any costs to the first support department. Thus, while the Step-down Method is an improvement upon the Direct Method in that it allocates some support department costs, it still does not fully allocate the costs attributable to inter-department services between the support departments. To fully capture this interaction, one must use the Reciprocal Method.
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You just explained in 7 minutes what my professor failed to explain in 2 hours. Thank you.
i know right
We have like 3 hours per meeting in our class but my professor makes it very difficult for me to understand xD
don't know why even waste my gas to attend the class...
@@kazuwaaa4154 fr bro its totally frustrating
You are my new go-to for assistance with managerial accounting subjects! Your videos are so thorough and easy to understand. Thanks for all you do to help struggling students who have difficulty filling in the gaps from our textbooks. Bless you!
Your videos are the best!!!! They illuminate the subject far more than my textbook Thank you so much!
My pleasure! I'm glad you're mastering the concepts. Reading accounting textbooks is about as fun as staring at the wall :)
Great video. Thanks. Although it would be better if you explained the logic behind the ranking. If the highest rank goes to the department with highest costs incurred then wouldn't it be admin in this case?
My professor insists on using complicated tables but this is the best explanation ever!!! Such a simple way of thinking about it!!
I recently found your videos, and I wish I had found you sooner. Your videos make difficult concepts easier to understand. Thank you so much! I now have hope of passing my last for accounting classes. 🙂
I cannot thank you enough for making these videos! They are truly saving my hopes of passing this course. You are a legend
I am taking the Accounting program at university. but I don't listen to my professors, I study with Michael. He is the best!
You have not explained on what basis the ranking is being done.. That would have made this even more clearer even though the explanation is indeed very good.
Great Video. Thank you.
You make difficult concepts easy to understand. Please continue to share your knowledge with the world.
Thank you for the kind words and the encouragement!
my new fav channel
Welcome to the party!
Awesome explanation!
WOW! I think I actually got it. I don't know why I found this so confusing before.
Your channel helps me so much, thank you
Thank you so so sooo much, this helped me a ton!!!
You're saving my dam life. Thank you
Absolutely amazing job! Clear and very understandable videos. Keep it up! :)
Thank you 🙏
I understand....
thank you
Oh my gosh !!! You are a genius
THANK YOU SO MUCH ♥ god bless you
Thank you - best wishes to you as well!
Great Explanation. thanks guys
Anyone else having issues viewing Edspira's videos?
your welcome your videos are very helpful.
Jeremy, thanks so much!
You missed one critical part, how did you rank them?
STILL DONT KNOW LOL
HR was the first in sequence. He said that.......
You rank in accordance to functional importance. Meaning that a company that ranks HR cost allocation extremely important for company wide functions (staying in business due to high costs %) will rank HR #1 and every other acct after that is ranked in lower importance (if that makes sense).
Also, he did answer the question: "The ranking does matter, and this is usually based on the percentage of costs that a support department incurs to support other support departments. The support department with the highest percentage would be allocated first. Good question!"
Sometimes, it will be stated in the problem which service department to start but typically you start with the dept that renders service to the greatest number of other service depts and ends with the least number of other depts.
thank you so much!
How do you know which support department to rank first?
Following
@@jimelewa7861 The ranking is based on the percentage of a support department providing services to another support department.
Here to find the ranking we first use the cost driver ;
Human resources: they provide services to the Administrative department so
10,000/40000 *100 = 25%
For the administrative department : human resources use 4000 of their hours, so
4000/ 20000 * 100 = 20%
In conclusion, we can say that more human resource services were provided to other support departments and should be allocated first.
I hope this was useful :)
So how did you rank them?
Can you make a video on Spoilage costing -process costing and how to account for it. Your videos are a great help.
I currently have 8 videos on process costing (edspira.com/lessons/process-costing), but spoilage costing is not one of them. I will add this to my list of requested videos. Thanks!
shouldn't the ranking start with the service department providing the most service to another service department? in that case the ranking should start with Administrative staff and not Human Resources?
Could someone please tell me what "Hierarchy stepdown" is?
Hi, thank you for this video, =) How do I rank which goes first? for inst: human resource then administrative staff.
Pat M. I’m wondering too, is it because administrative has more hours than HR so we know that we have a pre determination that HR hrs are going into the total Overall hrs in admin?
Wow. Thank youuu. You are very amazing sir...please make a video on fifo/lifo/weighted ave periodic and perpetual method.
I got you covered! I have an entire lesson on different inventory methods on the Edspira website. Check it out here: www.edspira.com/lessons/inventory/
Thank you 😊
Sir this video picture is cluttered, could you please check and fix it
I understand that you never allocate things back, but for administrative staff, you have 10,000 hours towards HR. We just ignore that?
there's a question please someone answer
if the admin got 46000 then all of it got alloted to mountaineering and kayaking department then why did you say in the end that admin had got 6000 allocation. or was it just to brief the method ?
If you have 3 services to 2 production, does the same method applies?
Does it matter order that you rank the support departments?
The ranking does matter, and this is usually based on the percentage of costs that a support department incurs to support other support departments. The support department with the highest percentage would be allocated first. Good question!
in your video, the HR is allocated firstly. so it should be allocating Admin first?
@@Edspira oh. Thank you. Can you please make a video on ranking service departments too?Thank you
@@angelacui5358 yes that is correct
what if there were 3 support departments? Would you proceed in the same way, only allocating support department costs to operating department costs for the first support department and only operating departments for the next 2?
+Anthony Jabbour Yes. It does not matter how many support departments there are- you will only allocate costs to the first that is given and ignore the rest.
Türkiye'den selamlar.
You did not explain how the ranking is done
You rank in accordance to functional importance. Meaning that a company that ranks HR cost allocation extremely important for company wide functions (staying in business due to high costs %) will rank HR #1 and every other acct after that is ranked in lower importance (if that makes sense).
Also, he did answer the question: "The ranking does matter, and this is usually based on the percentage of costs that a support department incurs to support other support departments. The support department with the highest percentage would be allocated first. Good question!"