Week 7: Discussion

Purpose: Apply the principles of support department allocation to decision support

KSAs: Understand advantages/disadvantages of support department allocation methods

Points: 10

Admin: This is a multi-part question. There are no minimum word counts but you must answer the question in full. The expectation is that your response will include analysis and innovative cost avoidance ideas.

Part 1: Compare and contrast the three support department allocation methods. In your response, include advantages/disadvantages of each method and an analysis of how support costs are allocated.

Part 2: Recommend cost avoidance opportunities based on the scenario below:

You are a new cost accountant hired by Long Beach Automotive Sports (LBAS). LBAS is a Long Beach business that specializes in automotive restoration and customization. They have a Design Department and Fabrication Department. LBAS also has small legal, accounting, and maintenance departments. With inflation, LBAS realizes they need to cut expenses to protect profits.

In times of economic stress, companies often cut support department costs before they cut production costs. The perspective is that support departments do not generate profit and can absorb cuts without impacting revenue generation in the short-term.

Use the information gathered in Part 1 and the Harvard Business Review articleLinks to an external site. (When You've Got to Cut Costs - Now by Coyne, K., Coyne, S., and Coyne, E.) to recommend cost avoidance opportunities to LBAS. Below is a table to help conceptualize the impacts of the different allocation methods.