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rafapak


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service department costs-step down method
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Hi guys

I know that service departments usually provide services for manufacturing departments or for other service departments. In my illustration HR department provided 30 hours for security departament, 400 hours for Retail department and 250 hours for Restaurant departament. I have problem with 50 hours HR department provided for themselves. If those 50 hours were spent for HR by HR it looks like this cost cannot be apportioned to production departments because nothing was done for production department. Do you think guys that the author of this clip made mistake or it is really possible that service departments do services for themselves. If yes, what kind of services they can be ?



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Cheshire


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Hi Rafal
Remember what you are trying to achieve......COSTS are to be allocated to the income generating divisions (to ensure profitability).

In this case you have the HR function which provides 400 hours of support to retail division, 250 hours to restaurant division and 30 hours to security department. The kind of support HR covers is for example, payroll production, hiring of staff, staff support - training, disciplinary etc.  They also use up 50 hours themselves....this providing the same role but for the staff in the HR department (you can imagine with that many hours in total that it must be a fair size team).

It costs the company $146,000 to run the HR department.  This $146000 needs to be split across the income geneating teams, to absorb this cost.

When you move the HR cost, it is the whole of their COST, but only based on the HOURS USED by the retail and restaurant teams (IE 650 hours).

If passing the cost on to another service area, then you base it on their hours as well (e 680 hours for the 3 departments in this eg). But bear in mind, with the costs for the latter, ie security department, this will be added to their own existing cost base of $92k and the resultant figure $98738 if my maths is correct will then also be split between retail and restaurant, but this time based on the number of security guards.

When you move the cost for security ....again it's the total COSTS but then divided only by the number of guards USED by the two divisions, Ie 20 of the 23 guards. 

Hope that makes sense.

 

edited to correct some typos.



-- Edited by Cheshire on Tuesday 18th of February 2020 11:22:26 PM

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 Joanne 

Winner of Bookkeeper of the Year 2015, 2016 & 2017 

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position
rafapak


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Cheshire wrote:

Hi Rafal
Remember what you are trying to achieve......COSTS are to be allocated to the income generating divisions (to ensure profitability).

In this case you have the HR function which provides 400 hours of support to retail division, 250 hours to restaurant division and 30 hours to security department. The kind of support HR covers is for example, payroll production, hiring of staff, staff support - training, disciplinary etc.  They also use up 50 hours themselves....this providing the same role but for the staff in the HR department (you can imagine with that many hours in total that it must be a fair size team).

It costs the company $146,000 to run the HR department.  This $146000 needs to be split across the income geneating teams, to absorb this cost.

When you move the HR cost, it is the whole of their COST, but only based on the HOURS USED by the retail and restaurant teams (IE 650 hours).

If passing the cost on to another service area, then you base it on their hours as well (e 680 hours for the 3 departments in this eg). But bear in mind, with the costs for the latter, ie security department, this will be added to their own existing cost base of $92k and the resultant figure $98738 if my maths is correct will then also be split between retail and restaurant, but this time based on the number of security guards.

When you move the cost for security ....again it's the total COSTS but then divided only by the number of guards USED by the two divisions, Ie 20 of the 23 guards. 

Hope that makes sense.

 

edited to correct some typos.



-- Edited by Cheshire on Tuesday 18th of February 2020 11:22:26 PM

 thanks Joanne for reply. So if HR used 50 hours for themselves this means that they probably hired somebody to work in HR department and the process of hiring took them few hours or they probably did payroll for HR people which also took them few hours. I just wanted to understand what services HR do for themselves. I think after your explanation I got the point. 



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Cheshire


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Hi Rafal
Here is a bit more info on the type of things HR departments can get involved in.

Such departments can be absolutely massive - my former employer had a team of a couple of hundred to cover the North West of the UK, so the time they need to spend inward as well as outward looking can be substantial.



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 Joanne 

Winner of Bookkeeper of the Year 2015, 2016 & 2017 

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position
Cheshire


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Oh heck I forgot the link - here you go https://www.cipd.co.uk/knowledge/fundamentals/people/hr

 



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 Joanne 

Winner of Bookkeeper of the Year 2015, 2016 & 2017 

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

You should check out answers with reference to the legal position
rafapak


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thanks for reply Joanne

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